Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

IT Budget Levels Connected to Performance and Shareholder Returns

15.05.2008
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.

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
Sam M. Walton College of Business
(479) 575-6803, vrichardson@walton.uark.edu

Matt McGowan | newswise
Further information:
http://www.uark.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Self-illuminating pixels for a new display generation

There are videos on the internet that can make one marvel at technology. For example, a smartphone is casually bent around the arm or a thin-film display is rolled in all directions and with almost every diameter. From the user's point of view, this looks fantastic. From a professional point of view, however, the question arises: Is that already possible?

At Display Week 2018, scientists from the Fraunhofer Institute for Applied Polymer Research IAP will be demonstrating today’s technological possibilities and...

Im Focus: Explanation for puzzling quantum oscillations has been found

So-called quantum many-body scars allow quantum systems to stay out of equilibrium much longer, explaining experiment | Study published in Nature Physics

Recently, researchers from Harvard and MIT succeeded in trapping a record 53 atoms and individually controlling their quantum state, realizing what is called a...

Im Focus: Dozens of binaries from Milky Way's globular clusters could be detectable by LISA

Next-generation gravitational wave detector in space will complement LIGO on Earth

The historic first detection of gravitational waves from colliding black holes far outside our galaxy opened a new window to understanding the universe. A...

Im Focus: Entangled atoms shine in unison

A team led by Austrian experimental physicist Rainer Blatt has succeeded in characterizing the quantum entanglement of two spatially separated atoms by observing their light emission. This fundamental demonstration could lead to the development of highly sensitive optical gradiometers for the precise measurement of the gravitational field or the earth's magnetic field.

The age of quantum technology has long been heralded. Decades of research into the quantum world have led to the development of methods that make it possible...

Im Focus: Computer-Designed Customized Regenerative Heart Valves

Cardiovascular tissue engineering aims to treat heart disease with prostheses that grow and regenerate. Now, researchers from the University of Zurich, the Technical University Eindhoven and the Charité Berlin have successfully implanted regenerative heart valves, designed with the aid of computer simulations, into sheep for the first time.

Producing living tissue or organs based on human cells is one of the main research fields in regenerative medicine. Tissue engineering, which involves growing...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Save the date: Forum European Neuroscience – 07-11 July 2018 in Berlin, Germany

02.05.2018 | Event News

Invitation to the upcoming "Current Topics in Bioinformatics: Big Data in Genomics and Medicine"

13.04.2018 | Event News

Unique scope of UV LED technologies and applications presented in Berlin: ICULTA-2018

12.04.2018 | Event News

 
Latest News

Chemists at FAU successfully demonstrate imine hydrogenation with inexpensive main group metal

22.05.2018 | Life Sciences

Asian tiger mosquito on the move

22.05.2018 | Life Sciences

Self-illuminating pixels for a new display generation

22.05.2018 | Trade Fair News

VideoLinks
Science & Research
Overview of more VideoLinks >>>