The Impact of Information Technology Investments on Downside Risk of the Firm: Alternative Measurement of the Business Value of IT.

Author List: Otim, Samual; Dow, Kevin E.; Grover, Varun; Wong, Jeffrey A.;

Journal of Management Information Systems, 2012, Volume 29, Issue 1, Page 159-194.

We examine the effect that investments in information technology (IT) have on downside risk profiles of companies that made public announcements of their investments in technology. Given the limitations of financial and decision theory perspectives on risk, we adopt the strategic management perspective that stresses downside risk as an important alternative measure of firm performance. We examine whether different types of IT investments have a differential impact on firm downside risk. Drawing on the resource-based view of the firm and the real options perspective, we find evidence that IT investments and their timing influence organizational downside risk. Transformational and informational IT investments lead to a reduction in downside risk only if they lead to strategic IT investments in the industry. For competitive necessities such as IT investments that automate business functions, a reduction in downside risk is realized by investing in parity with industry participants. Our study contributes to the literature by offering an alternative perspective on the benefits of IT investments, particularly where no apparent incremental financial results may be evident. It also generates insights on IT investment strategies that may help firms keep up with or stay ahead of the competition.

Keywords: downside risk; IT investment; IT strategic role; real options perspective; resource-based view of the firm

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List of Topics

#271	0.259	technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#264	0.179	risk risks management associated managing financial appropriate losses expected future literature reduce loss approach alternative mitigate failures failure cause mitigation
#116	0.122	research study influence effects literature theoretical use understanding theory using impact behavior insights examine influences mechanisms specifically context perspective findings
#267	0.095	options real investment option investments model valuation technology value analysis uncertainty portfolio models using context intuitive managerial regret uncertain case
#59	0.070	capabilities capability firm firms performance resources business information technology firm's resource-based competitive it-enabled view study value infrastructure results organizational model
#246	0.054	strategic benefits economic benefit potential systems technology long-term applications competitive company suggest additional companies industry operating costs difficult substantial total