Information Technology and Firm Boundaries: Evidence from Panel Data.

Author List: Hitt, Lorin M.;
Information Systems Research, 1999, Volume 10, Issue 2, Page 134-149.
Previous literature has suggested that information technology (IT) can affect firm boundaries by changing the costs of coordinating economic activity within and between firms (internal and external coordination). This paper examines the empirical relationship between IT and firm structure and evaluates whether this structure is consistent with prior arguments about IT and coordination. We formulate an empirical model to relate the use of information technology capital to vertical integration and diversification. This model is tested using an 8-year panel data set of information technology capital stock, firm structure, and relevant control variables for 549 large firms.Overall, increased use of IT is found to be associated with substantial decreases in vertical integration and weak increases in diversification. In addition, firms that are less vertically integrated and more diversified have a higher demand for IT capital. While we cannot rule out all alternative explanations for these results, they are consistent with previous theoretical arguments that both internal and external coordination costs are reduced by IT.
Keywords: Computers; Diversification; Firm Boundaries; Information Technology; Transaction Costs; Vertical Integration
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#271 0.343 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#256 0.125 coordination mechanisms work contingencies boundaries temporal coordinating vertical associated activities different coordinate suggests dispersed coordinated horizontal relative demand spatial hours
#151 0.121 costs cost switching reduce transaction increase benefits time economic production transactions savings reduction impact services reduced affect expected optimal associated
#58 0.078 internal external audit auditing results sources closure auditors study control bridging appears integrity manager effectiveness auditor controls facilitating boundaries potential
#171 0.063 markets industry market ess middle integrated logistics increased demand components economics suggested emerging preference goods interesting form recent vertically chinese
#244 0.063 structure integration complex business enhancement effects access extent analyzing volatile capture requires occurs pattern enables independent integrative structured decision-making costs
#108 0.056 model research data results study using theoretical influence findings theory support implications test collected tested based empirical empirically context paper