Determining whether investments in information technology (IT) have an impact on firm performance has been and continues to be a major problem for information systems researchers and practitioners. Financial theory suggests that managers should make investment decisions that maximize the value of the firm. Using event-study methodology, we provide empirical evidence on the effect of announcements of IT investments on the market value of the firm for a sample of 97 IT investments from the finance and manufacturing industries from 1981 to 1988. Over the announcement period, we find no excess returns for either the full sample or for any one of the industry subsamples. However, cross-sectional analysis reveals that the market reacts differently to announcements of innovative IT investments than to followup, or noninnovative investments in IT. Innovative IT investments increase firm value, while noninnovative investments do not. Furthermore, the market's reaction to announcements of innovative and noninnovative IT investments is independent of industry classification. These results indicate that, on average, IT investments are zero net present value (NPV) investments; they are worth as much as they cost. Innovative IT investments, however, increase the value of the firm.
There is a growing interest in the use of induction to develop a special class of expert systems known as inductive expert systems. Existing approaches to develop inductive expert systems do not attempt to maximize system value and may therefore be of limited use to firms. We present an induction algorithm that seeks to develop inductive expert systems that maximize value. The task of developing an inductive expert system is looked upon as one of developing an optimal sequential information acquisition strategy. Information is acquired to reduce uncertainty only if the benefits gained from acquiring the information exceed its cost. Existing approaches ignore the costs and benefits of acquiring information. We compare the systems developed by our algorithm with those developed by the popular 1D3 algorithm, in addition. we present results from an extensive set of experiments that indicate that our algorithm will result in more valuable systems than the 1D3 algorithm and the 1D3 algorithm with pessimistic pruning.