The purpose of the paper is to determine if banks that solved the Y2K problem early created value for their shareholders.
The method of analysis is an event study.
The primary finding of the analysis is that solving the Y2K problem did not create value for bank shareholders. That is, announcements of solving the Y2K problem were not accompanied with positive stock price reactions.
While the paper does not find support for a positive reaction to solving Y2K, it does find some evidence of concerns about banks that were having trouble solving Y2K. However, the sample size of banks with problems was small and therefore we caution readers about generalizing these results.
All banks needed to solve the Y2K problem, but those solving Y2K do not appear to create value for their shareholders. From this we conclude that it is better to buy the solution to a required project than to develop it internally.
This paper is of interest to anyone in a capital budgeting decision making process that includes required projects.
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