This study provides a new perspective to the longstanding debate on the business value of IT. Prior research on IT value takes an internal perspective - focusing on business processes and complementary resources that help create value form IT investments. In this study, we take an external perspective focusing on the value discovery role of stock analysts. Stock analysts collect information about firms' IT investments and provide informed recommendations to investors in the financial market. Research in finance has long shown that stock analysts can reduce information asymmetry between the firm and investors. However, despite that IT investments are known for their complexity and inherent risks, little is known about the role of stock analysts in helping the financial market understand firms' investments in IT. We address this question empirically using IT assets and firm performance data of Fortune 1000 firms between 1996 and 2007. Our empirical evidence suggests that stock analysts play an intricate mediating role in the stock market evaluation of IT investments. Analyst recommendations have a stronger mediating role in the effects of enterprise IT systems (ERP and CRM) on firm market value, but a weaker and insignificant mediating role in the effects of function IT systems (DSS, HR and AIS). In addition, we find that the mediating role of financial analysts for IT investments is more salient when the firm's market environments are more uncertain and unpredictable. These findings suggest that financial analysts play a critical role in the market valuation of firms' IT investments.
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