Information Technology and Firm Boundaries: Impact on Firm Risk and Return Performance.

Author List: Dewan, Sanjeev; Ren, Fei;
Information Systems Research, 2011, Volume 22, Issue 2, Page 369-388.
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.
Keywords: diversification; firm boundaries; IT investments; risk and return; strategic use of IT; vertical integration
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#271 0.277 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#168 0.162 firms firm financial services firm's size examine new based result level including results industry important account does suggests characterize limited
#173 0.150 effect impact affect results positive effects direct findings influence important positively model data suggest test factors negative affects significant relationship
#264 0.109 risk risks management associated managing financial appropriate losses expected future literature reduce loss approach alternative mitigate failures failure cause mitigation
#148 0.103 productivity information technology data production investment output investments impact returns using labor value research results evidence spillovers industries analysis gains
#237 0.069 boundary practices capacity new boundaries use practice absorptive organizational technology work field multiple study objects actors actor theory practical spanning