Motivated by the wide dispersion in the returns on the use of information technology (IT) across industries, we conduct an industry-level examination of IT return and risk, focusing on the moderating role of industry competition, regulation, and technological change. We address the following research questions: What is the impact of IT investment on the return and risk dimensions of industry financial performance? How do industry characteristics moderate the relationship between IT investment and industry performance? Our analysis of these questions finds that higher levels of industry competition are associated with higher IT productivity (contribution of IT to value-added output), lower IT profitability (contribution of IT to industry average return on assets [ROA]), and higher IT risk (contribution of IT to ex ante variability of ROA). This is consistent with the notion that competition induces riskier IT investments, despite the fact that returns tend to be competed away. Higher levels of industry regulation are associated with lower IT returns in both productivity and profitability, but also lower IT risk. Finally, a higher rate of technological change induces both higher IT returns and higher IT risk. A variety of tests indicate that our results are robust. Our results shed light on factors that drive variation in IT performance across industries, and provide useful industry-level performance benchmarks of the return and risk impacts of IT investments. > >
Motivated by the growing importance of social media, this paper examines the relationship between new media, old media, and sales in the context of the music industry. In particular, we study the interplay between blog buzz, radio play, and music sales at both the album and song levels of analysis. We employ the panel vector autoregression (PVAR) methodology, an extension of vector autoregression to panel data. We find that radio play is consistently and positively related to future sales at both the song and album levels. Blog buzz, however, is not related to album sales and negatively related to song sales, suggesting that sales displacement due to free online sampling dominates any positive word-of-mouth effects of song buzz on sales. Further, the negative relationship between song buzz and sales is stronger for niche music relative to mainstream music, and for less popular songs within albums. We discuss the implications of these results for both research and practice regarding the role of new media in the music industry.
Online social media such as blogs are transforming how consumers make consumption decisions, and the music industry is at the forefront of this revolution. Based on data from a leading music blog aggregator, we analyze the relationship between music blogging and full-track sampling, drawing on theories of online social interaction. Our results suggest that intensity of music sampling is positively associated with the popularity of a blog among previous consumers and that this association is stronger in the tail than in the body of music sales distribution. At the same time, the incremental effect of music popularity on sampling is also stronger in the tail relative to the body. In the last part of the paper, we discuss the implications of our results for music sales and potential long-tailing of music sampling and sales. Put together, our analysis sheds new light on how social media are reshaping music sharing and consumption.
In this paper, we empirically investigate the impact of information technology (IT) investment on firm return and risk financial performance, emphasizing the moderating role of the firm boundary strategies of diversification and vertical integration. Our results indicate a sharp contrast between the direct and interactive effects of IT on both the return (profitability) and risk (variability of returns) dimensions. Although the direct effect of IT capital is to increase firm risk for a given level of return, we find that suitable boundary strategies can moderate the impact of IT on firm performance in a way that increases return and decreases risk, at the margin. This interaction effect is strongest in service firms, in firms with high levels of IT investment intensity, and in more recent time periods. Our results are robust to alternative proxies for firm risk, including an ex ante risk measure (variability of analysts' earnings estimates), and alternative risk-return specifications. Put together, our results provide new insights into how IT and firm boundary strategies interact to affect the risk and return performance of firms.
This paper studies the cross-country diffusion of personal computers (PCs) and the Internet, and examines how the diffusive interactions across these technologies affect the evolution of the global digital divide. We adopt a generalized diffusion model that incorporates the impact of one technology's installed base on the diffusion of the other technology. We estimate the model on data from 26 developing and developed countries between 1991 and 2005. We find that the codiffusion effects between PCs and the Internet are complementary in nature and the impact of PCs on Internet diffusion is substantially stronger in developing countries as compared to developed ones. Furthermore, our results suggest that these codiffusive effects are a significant driver of the narrowing of the digital divide. We also examine the policy implications of our results, especially with respect to how complementarities in the diffusion of PC and Internet technologies might be harnessed to further accelerate the narrowing of the global digital divide.
This paper takes an event study approach to jointly examine the wealth and risk effects associated with electronic commerce announcements, contributing to the emerging research on the riskiness of IT investments and the trade-off between risk and return in the information systems literature. We estimate a generalized event study model that allows for both systematic and unsystematic risk changes on data collected for electronic commerce announcements in the 1996-2002 time frame. A striking result emerging from our analysis is that wealth effects are not significant after controlling for contemporaneous risk changes. Both total and unsystematic risk show a significant postevent increase in 1998 and 2000, whereas systematic risk adjusts downward in 1996 and 2002. Put together, our results contribute to our nascent understanding of how IT initiatives affect the risk-return profile of the firm.
This paper conducts an empirical analysis of the link between the scale and scope of the firm and information technology (IT) investments, emphasizing the role of IT in coordination and control. We extend the economic production function framework to include variables related to the boundaries of the firm, including related and unrelated diversification, vertical integration and growth options, and we estimate the resulting model on a data set based on annual surveys of IT spending by large U.S. firms, conducted by Computerworld during the period 1988-1992. Our results suggest that the level of IT investment is positively related to the degree of firm diversification, perhaps reflecting the greater need for coordination of assets within diversified firms. We further find that related diversification demands greater IT investment than unrelated diversification. Firms that are less vertically integrated have a higher level of IT investment. Finally, firms with fewer growth options in their investment opportunity set tend to have a higher IT investment, consistent with an agency perspective which predicts excessive IT investment by managers with "free" cash flow. Put together, these empirical relations between IT investments and firm characteristics help us better understand the role of IT in coordination and control and the choices firms make in information systems and strategy.
This paper extends the analysis of the long-run pricing and capacity decision problem for shared computer services by Dewan and Mendelson (1990) and makes two further contributions. First, we show that simple marginal capacity cost pricing is often optimal in the absence of private user information, and it outperforms cost recovery and profit center pricing methods. Second, we provide insights into the implications of declining computing costs on the tradeoff between capacity costs and user time. In equilibrium, expected user delay costs are bounded by capacity costs due to the substitution of cheaper information processing capacity for valuable user time.