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Research Note---Do Large Firms Become Smaller by Using Information Technology?

Author

Listed:
  • Kun Shin Im

    () (School of Business, Yonsei University, Seoul 120-749, Korea)

  • Varun Grover

    () (Department of Management, Clemson University, Clemson, South Carolina 29634)

  • James T. C. Teng

    () (College of Business Administration, University of Texas, Arlington, Texas 76019)

Abstract

The relationship between information technology (IT) and a key organizational design variable, firm size, is an important area of study, particularly given the ongoing transition to an information-based economy. To better understand the more nuanced aspects of the relationship, we formulated a bidirectional and time-lagged model that incorporates different perspectives from organizational theories and transaction cost economics. Our two models---the bidirectional and one-year lagged model and the bidirectional and two-year lagged model---were tested using nine-year panel data on IT spending, IT stock, coordination costs, firm size, and relevant control variables for 277 manufacturing firms. We found a sequential interaction between IT and firm size in both of the two models: as a firm grows in size, its coordination activities increase; the firm then uses more IT to handle the increased activities of coordination; this increased use of IT, in turn, decreases coordination costs, and eventually, the size of the firm decreases. It was also found that the presence of coordination costs is necessary for the sequential interaction between IT and firm size, indicating coordination between and within firms is a major reason for firms to invest in IT and for IT effect to take place on firm size. This study has taken an initial step by attempting to empirically examine dual causality and longitudinal effects between IT and firm size, and to reconcile different theoretical perspectives on the relationship between them. We hope this work can act as a catalyst for developing a better understanding of the complex relationship between IT and organizations, with the ultimate goal of offering robust prescriptions for successful structural change.

Suggested Citation

  • Kun Shin Im & Varun Grover & James T. C. Teng, 2013. "Research Note---Do Large Firms Become Smaller by Using Information Technology?," Information Systems Research, INFORMS, vol. 24(2), pages 470-491, June.
  • Handle: RePEc:inm:orisre:v:24:y:2013:i:2:p:470-491
    DOI: 10.1287/isre.1120.0439
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    File URL: http://dx.doi.org/10.1287/isre.1120.0439
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jonghak Sun, 2017. "The effect of information technology on IT-facilitated coordination, IT-facilitated autonomy, and decision-makings at the individual level," Applied Economics, Taylor & Francis Journals, vol. 49(2), pages 138-155, January.
    2. Ju-Yeon Lee & Shrihari Sridhar & Conor M. Henderson & Robert W. Palmatier, 2015. "Effect of Customer-Centric Structure on Long-Term Financial Performance," Marketing Science, INFORMS, vol. 34(2), pages 250-268, March.
    3. JosephNg, P.S., 2018. "EaaS Optimization: Available yet hidden information technology infrastructure inside medium size enterprise," Technological Forecasting and Social Change, Elsevier, vol. 132(C), pages 165-173.
    4. Constantinos S. Lioukas & Jeffrey J. Reuer & Maurizio Zollo, 2016. "Effects of Information Technology Capabilities on Strategic Alliances: Implications for the Resource-Based View," Journal of Management Studies, Wiley Blackwell, vol. 53(2), pages 161-183, March.
    5. Dow, Kevin E. & Watson, Marcia Weidenmier & Shea, Vincent J., 2017. "Riding the waves of technology through the decades: The relation between industry-level information technology intensity and the cost of equity capital," International Journal of Accounting Information Systems, Elsevier, vol. 25(C), pages 18-28.
    6. Min-Seok Pang & Ali Tafti & M. S. Krishnan, 2016. "Do CIO IT Budgets Explain Bigger or Smaller Governments? Theory and Evidence from U.S. State Governments," Management Science, INFORMS, vol. 62(4), pages 1020-1041, April.

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