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Information technology, contextual factors and the volatility of firm performance

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  • Kobelsky, Kevin
  • Hunter, Starling
  • Richardson, Vernon J.

Abstract

This study uses previous theory developed in the IT implementation literature and the information processing view of the firm to empirically investigate the impact of IT investments and several contextual variables on the volatility of future earnings. We use InformationWeek 500 data on IT spending from 1992–1997 to find evidence that IT investments increase the volatility of future earnings but that this impact is highly contingent upon three firm level contextual factors — sales growth, unrelated diversification, and size. These factors can lead to conditions in which IT increases or reduces earnings volatility. Taken together, these results may help explain what has recently been termed the “new productivity paradox,” i.e., the apparent under-investment in information technology despite evidence of highly positive returns for doing so, and suggests settings where managers may be under- or over-discounting returns on IT investments.

Suggested Citation

  • Kobelsky, Kevin & Hunter, Starling & Richardson, Vernon J., 2008. "Information technology, contextual factors and the volatility of firm performance," International Journal of Accounting Information Systems, Elsevier, vol. 9(3), pages 154-174.
    • Handle: RePEc:eee:ijoais:v:9:y:2008:i:3:p:154-174
    DOI: 10.1016/j.accinf.2008.02.002
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    References listed on IDEAS

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    Cited by:

    1. Holder, Anthony & Karim, Khondkar & Lin, Karen (Jingrong) & Pinsker, Robert, 2016. "Do material weaknesses in information technology-related internal controls affect firms' 8-K filing timeliness and compliance?," International Journal of Accounting Information Systems, Elsevier, vol. 22(C), pages 26-43.
    2. Vincent J. Shea & Kevin E. Dow & Alain Yee-Loong Chong & Eric W. T. Ngai, 2019. "An examination of the long-term business value of investments in information technology," Information Systems Frontiers, Springer, vol. 21(1), pages 213-227, February.
    3. Ling Xue & Gautam Ray & Xia Zhao, 2017. "Managerial Incentives and IT Strategic Posture," Information Systems Research, INFORMS, vol. 28(1), pages 180-198, March.
    4. Kobelsky, Kevin W. & Robinson, Michael A., 2010. "The impact of outsourcing on information technology spending," International Journal of Accounting Information Systems, Elsevier, vol. 11(2), pages 105-119.
    5. Kallunki, Juha-Pekka & Laitinen, Erkki K. & Silvola, Hanna, 2011. "Impact of enterprise resource planning systems on management control systems and firm performance," International Journal of Accounting Information Systems, Elsevier, vol. 12(1), pages 20-39.
    6. Masli, Adi & Richardson, Vernon J. & Sanchez, Juan Manuel & Smith, Rodney E., 2011. "Returns to IT excellence: Evidence from financial performance around information technology excellence awards," International Journal of Accounting Information Systems, Elsevier, vol. 12(3), pages 189-205.
    7. Vincent J. Shea & Kevin E. Dow & Alain Yee-Loong Chong & Eric W. T. Ngai, 0. "An examination of the long-term business value of investments in information technology," Information Systems Frontiers, Springer, vol. 0, pages 1-15.

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    More about this item

    Keywords

    SSRN: Journals-Management Research Network; MRN Information Systems & eBusiness Network; Computers & Information Technology; MRN Management Network; IO: Productivity; Innovation & Technology;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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