Prog.MSc PM
Adm. – Grad.2011 – 2014
Dir.; Codir.Stéphane Gagnon

Contagion Between Competitors of Risk Perception by Financial Markets: The Case of Information Technology

Ben Mahmoud, Nizar

Large, publicly traded firms often issue public announcements, whether related to ongoing projects (e.g., new product, major investment, joint venture) or general organizational issues (e.g., leadership, markets, finances).

We evaluate the contagion of the risk between competitors in the same sector, that of information technology (IT). We focused on two segments exposed to the same economic conditions, but with a very different cost structure: the software segment, which is of type organization by project and of type of organization and project focused on licensing revenues (ie d, partner networks. rigid contracts, high fixed costs, loss absorption), and the computer segment, including manufacturing companies are very flexible (ie d., network outsourcing, agility, low-cost, prevention against losses).

We analyze a database of news from Yahoo! Finance, compiled the minute 10 working days (February 28, 2011 to March 11, 2011 between 9:30 am and 16 pm), and related segments of the S&P500. The news is filtered and reduced to 36 news items, 23 news items (63%) are project-related as follows: 14 software firms (of which 3 firms had 8 news items) and 10 computer and peripherals manufacturers (of which 5 firms had 15 news items).

The data was then analyzed using an event study methodology. The Capital Asset Pricing Model (CAPM) was used to estimate the Abnormal Returns (ARs) for each firm and event, but unfortunately produced insignificant results, so we pursued our research with raw returns.

We calculated the covariance matrix between each undertaking concerned members and competitors in its segment, as well as the evolution of the matrix over time. We also used the centrality measures applied to networks of covariance to group companies / events by common types of market reactions, and thus detect patterns in the diffusion or contagion risk. 

Our study allows us to conclude that there is a contagion effect of perceived risks in the IT sector. This contagion is different, depending on the different sectors, namely software and computer. It is also different according to the weeks of high or low volatility.

This study confirms that the analysis of financial news and events is an essential skill for project management, program and portfolio management in IT companies, especially those project-oriented. We therefore recommend the integration of the analysis of contagion perceived risks in the whole process of project management as risk management and cost management to ensure project success.