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
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.
Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...
Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.
Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...
Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.
As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...
Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.
With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...
Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine
Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...
19.06.2017 | Event News
13.06.2017 | Event News
13.06.2017 | Event News
27.06.2017 | Power and Electrical Engineering
27.06.2017 | Information Technology
27.06.2017 | Physics and Astronomy