In 1978 information-technology expenditures accounted for only five percent of firms’ fixed investments, but by 2005, that figure had risen to 22 percent, for a total of $283 billion. Despite this large increase and the continuing trend toward greater investment in information technology, relatively little is known about the effects of information technology on financial performance.
In the first study to systematically investigate the effect of various contextual factors – growth, market diversification, vertical integration and type of industry, to name only a few – that influence information-technology budget decisions, an accounting researcher at the University of Arkansas found that information-technology budget levels were positively connected to subsequent firm performance and shareholder returns.
“Senior managers continue to question whether their firms are spending too much or too little on IT,” said Vernon Richardson, professor and chair of department of accounting in the Sam M. Walton College of Business. “We believe that our ability to model IT budget levels, contingent upon a set of environmental, organizational and technological factors, will help CIOs and CFOs evaluate and set their IT budgets based on a variety of industry and firm contextual factors rather than a percentage of sales.”
Richardson and his colleagues – Kevin Kobelsky at Baylor University, Robert Zmud at the University of Oklahoma and Rodney Smith at California State University, Long Beach – relied on a unique set of budget data for a group of large IT-spending firms, known as the Information Week 500, to investigate, as he mentioned, various environmental, organizational and technological factors that managers must consider while developing information-technology budgets, which include expenditures on salaries, payments to service and vendor firms, hardware and software upgrades, training and other areas. The above contextual factors include a wide range of external and internal circumstances, such as type of industry – telecommunications or energy, for example – growth opportunities, market diversification, vertical integration and need for technology. Based on an understanding of these factors, the researchers grouped firms according to their “opportunity space” and developed a model of expected or predicted budget amounts for information technology. They also modeled “residual IT,” an excess or shortfall of the predicted amount.
The researchers found that information-technology budget levels have a positive impact on financial performance and shareholder returns, but, Richardson cautioned, this doesn’t necessarily mean that the contextual factors provide a complete understanding of the amount firms should spend on information technology. Specifically, information technology’s aggregate effect on performance was a weighted average of two different components: predicted budget levels based on the contextual factors mentioned above and idiosyncratic, or firm-specific, expenditures not accounted for by the contextual factors.
“Since both of these components were positively associated with performance,” Richardson said, “we believe that the contextual factors, while beneficial to CIOs and CFOs, do not provide a complete explanation of the value of firms’ information technology expenses.”
The researchers’ findings will be published in the July 2008 issue of Accounting Review, the premier accounting academic journal.
Richardson is holder of the S. Robson Walton Chair in Accounting.
CONTACT:Vernon Richardson, professor and chair, department of accounting; S. Robson Walton Chair in Accounting
Matt McGowan | newswise
Blockchain Set to Transform the Financial Services Market
28.09.2016 | HHL Leipzig Graduate School of Management
Paper or plastic?
08.07.2016 | University of Toronto
Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion
Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...
Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.
"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...
In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.
A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...
By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.
"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...
COMPAMED has become the leading international marketplace for suppliers of medical manufacturing. The trade fair, which takes place every November and is co-located to MEDICA in Dusseldorf, has been steadily growing over the past years and shows that medical technology remains a rapidly growing market.
In 2016, the joint pavilion by the IVAM Microtechnology Network, the Product Market “High-tech for Medical Devices”, will be located in Hall 8a again and will...
14.10.2016 | Event News
14.10.2016 | Event News
12.10.2016 | Event News
24.10.2016 | Earth Sciences
24.10.2016 | Life Sciences
24.10.2016 | Physics and Astronomy