1 Introduction

Shared services are an organizational form enabled by information systems to consolidate and provide business services to internal users [35]. While the concept of shared services emerged in 1970s, this model has become increasingly popular recently as a means for lowering costs and improving performance of such business functions as finance and accounting, human resources management, information technology and procurement [13]. By 2017, more than seventy five percent of Fortune 500 companies have established shared service models [31].

Information systems form the technological infrastructure of shared services because it is through centralized databases, telecommunication networks, servers and enterprise applications that shared services for support business activities are performed by a separate organizational unit and are provided to other business units [1, 33, 35]. This makes shared services a pertinent topic for IS research [13]. Although shared services are widely discussed in practitioners’ magazines, academic research including both management research and IS research on shared services is sparse and at an early stage [13, 36]. Specifically, in reviewing IS literature from 1994 to 2011, Fielt et al. [13] find only twenty-nine articles in IS journals and conference proceedings that have shared services as the focal theme. Moreover, most current research is exploratory with case studies or theoretical analyses [31]. For example, Lacity and Fox [22] discuss Reuters’s strategy in deploying shared services, and Tomasino et al. [40] investigate the complexity in the shared service center (SSC) for local government agencies in an Illinois county. While current research notes the endeavors and challenges of organizations in implementing shared services, there lacks empirical studies on the effects or benefits of shared services to business [31]. At the same time, in practice, businesses have been seeking to generate value with shared services in addition to the benefits of cost savings [11]. For example, they intend to make improvements in service quality, process optimization and digitization of infrastructure. They are yet to find out how to do so.

As an IT-enabled organizational form for offering support services, SSCs’ benefits can be assessed from the perspective of IT business value. In IS literature, the effects of information systems on business operations and financial performance, is an important topic in IT business value research [45]. These include the effects at the firm level and process level. At the firm level, investments in IT assets are found to contribute to productivity and consumer surplus [6]. Public announcements of transformative IT initiatives increase abnormal stock returns [10]. In addition, many information systems are deployed to perform business functions so that there are direct effects on relevant processes [39]. The effects on business processes include improved efficiency and service quality, that are measured by process-specific metrics. Thereafter, from the above perspective of IT business value, how can we identify and evaluate the effects of shared services? This becomes the research question for our study.

As an effort to answer the above question, we draw on research in IT business value to examine the impacts of shared services on business performance at both firm level and process level. On the one hand, shared services employ centralized information systems to deliver support business activities. Such systems become part of the organizational IT infrastructure that has a substantial impact on the bottom line of firm performance. On the other hand, with the shared services model, business processes for the support activities are consolidated and centralized with the facilitating information systems, and thus the business process performance is affected in addition to IT systems. Furthermore, the impacts of IT resources on business value are mediated by process performance as depicted in the conceptual framework of IT business value [34]. Therefore, we infer that shared services that are implemented and enabled by information systems affect the performance of relevant processes which can in turn bring about firm-level effects. While such a mediated impact can be derived from conceptual discussions, empirical studies are needed to support this argument. Thus, in this study, an important task is to examine empirically the impacts of shared services on firm-level busine value with process performance as the mediator along with the direct impacts.

Specifically, we choose finance shared services as the research context for our study because finance and accounting is a major business functions for shared services model [36]. In this context, we launch an inquiry into the effects of finance shared services on firm performance. We propose that finance shared services impact firm profitability both directly and indirectly via the influences on the performance of finance and accounting process. Our hypotheses are then tested and supported by data of public firms traded on Chinese stock markets that implemented finance shared services from 2008 to 2019.

Our study makes contributions to IT business value research on two aspects. First, our study develops insights into the mediation effect of process performance that received little attention in prior empirical studies. Although conceptual frameworks in IT business value research have noted that process performance mediates the impacts of IT resources on firm business value [34, 45], there is a lack of empirical work examining such indirect effects. In this study, we collected a panel data to test whether the performance of finance and accounting process mediates the effects of IT-enabled finance shared services on firm profitability. This will certainly provide useful empirical evidence for the mediation path in IT business value research. Second, our study exemplifies how an IT-enabled organizational form can be evaluated from the viewpoint of IT business value research. When assessing the IT value to organizations, researchers have used various approaches to represent IT resources: IT capital as inputs for production [19, 25], specific IT systems such as ERP [20] or data analytics applications [42], or IT initiative announcements [10]. Our study adds shared services model to this list. Shared services model differs from the other types of IT resources as it integrates IT infrastructure, business processes and organizational governance structure. Thus, our empirical examination of the impacts of finance shared services brings attention to this IT-enabled organizational form for support business services in the field of IT business value research.

Our study also contributes to research on shared services. Specifically, it expands our understandings about the impacts of shared services as an IT-enabled organizational form. As Richter and Brühl [31] noted in their literature review, the effects of shared services are often discussed in case studies or based on conceptual analyses (for example, [33, 44]). Our study contributes to this line of research with a large-scale empirical analysis using panel data of firms that implemented finance shared services. The statistically significant positive effects also help alleviate concerns about the negative impacts of business process standardization due to the implementation of shared service centers, as indicated in the prior studies such as Harritz [17]. It also provides important implications for practice by revealing a path for firms to obtain value from shared services through improving the business processes.

This paper is organized as follows. In the next section, we review the relevant studies about shared services and IT effects on business performance in the literature of IT business value. Following that, we develop our research hypotheses regarding the effects of finance shared services. The fourth section delineates the empirical study conducted to test our model and the data analysis results. In this section, we describe the data sources and data collection steps. We then describe the estimation models for testing the hypotheses and present the estimation results. We also include the results of robustness tests. Moving on from the fourth section, we summarize the data analysis results and discuss the implications of our study, including the contributions to research on IT business value and shared services. On the one hand, we gain a better understanding about the characteristics of shared services as an IT-enabled organizational form delivering business services on centralized enterprise IT infrastructure and more importantly, about how such IT services impact firm performance. On the other hand, from the lens of IT business value research, we present an empirical study that shows the combined direct effects and intermediated effects of IT-enabled business service model.

2 Background

In this section, we review the related research about shared services and IT business value that provide the research background for our work.

2.1 Shared services

Shared services are an organizational form that consolidates the back-office functions from different business units within the organization and that is operated as a separate organizational unit, often called shared service center (SSC) [35]. In enterprises with a matrix organizational structure, individual divisions and units often have their own departments or sub-units for support business activities or back-office services such as human resource management, and financial and accounting services. In recent years, a strong trend among multi-divisional firms is to consolidate and standardize these services to optimize resources enterprise-wide [33]. To this purpose, SSCs are set up as the organizational units within the corporation to provide common support services, functioning as service suppliers to internal customers [28]. The shared services model may also be referred to as internal outsourcing, with the SSC as the service provider for internal business customers [1]. To adopt a shared service model, an organization consolidates resources of common support services from business units and co-locates these resources at a separate but centralized location outside of other business units. For example, Ericsson, a multinational telecommunication device manufacturer, centralized the financial and accounting functions through three phases, from nationally, regionally to globally [23]. During this process, financial and accounting activities of local marketing units were taken out of the local units to be performed at an SSC that is located at another place and provides the same business functions to other marketing units. In summary, at the level of business process, shared service model exhibits the following features: business processes are consolidated for support activities, the SSC is operated as a separate organizational unit within the organization, and the SSC serves internal customers [35].

Underlying the process level, there lies the IT infrastructure for shared service model. SSCs rely on information technology to automate the supported tasks and to deliver the services online to other business units [9]. IT systems form the foundation and technological infrastructure for the operation of SSCs [1, 35]. In the instance of Ericsson, its SSCs utilized functions of the corporate ERP system to perform financial and accounting services provided to business units [23]. The installation of these IT systems constitutes a substantial portion of the start-up cost of SSCs and the continuing operation of the systems is an integral part of the shared business services. In this sense, shared services are an IT-enabled business service delivery model within organization. Under shared services model, business functions are provided to multiple business units through shared IT infrastructure, including databases, communication networks, servers and information systems applications [13].

Hence, shared service model contains two essential components: business processes for support business activities and IT infrastructure. This delineates the scope of shared services model. Specifically, a shared service model, embodied as an SSC, represents an operational capability for “employing resources for firms’ support activities” enabled by IT [33, p. 75]. One component alone, either business processes or IT infrastructure, is not sufficient for shared services. For example, Intranets and VPNs are necessary network technologies, but they alone do not form shared services. However, when intranets and VPNs are deployed to provide financial reporting services to business units by an SSC, they become the technological infrastructure for offering the shared service of financial reporting.

Based on IT infrastructure, an SSC consolidates tasks and activities of given business functions that are previously duplicated across business divisions. The data for these tasks are collected from divisions, and processed in centralized information systems including databases, servers, applications and networks. They are standardized in the sense that the same data format and specification are used across divisions that may use customized data before. Furthermore, they are made available to all the divisions that use the same business functions. Not only data but also the workflow for performing the given functions is shared and standardized when the services are provided to business units in the same manner through SSC [28]. The same group of staff follow the same procedures in performing the business functions, and the same software applications that embody the procedures are used to provide the business functions to different divisions [36]. This streamlining of workflow at SSCs is depicted by Yang et al. [44] in their case study on five financial SSCs. At these financial SSCs in Yang et al. [44], reimbursement workflow is streamlined and provided to all other business units as a standard procedure. For all business units, the reimbursement workflow comprises six steps from filling in a bill to generating a voucher, which are completed online at SSCs in the same manner.

Moving beyond the centralization and standardization, shared services can become the venue for changes in business processes. First, the centralized delivery of the support services can facilitate the coordination between tasks in performing these services by enabling smooth information exchange [9]. Second, SSCs are positioned to identify and implement the best practices in performing the tasks with the aim of improving service quality [28]. Given well-formed strategy, business process redesign can be integrated into the implementation of shared services [22].

Even though the establishment of shared services may bring about the above organizational and technological changes, how would these changes impact firm performance? The main benefit that has been discussed in the literature and also in practice is cost savings from improved efficiency and productivity gains [41]. However, the expected cost savings are not guaranteed [35]. The increased corporate control and oversight does not necessarily increase efficiency [36]. Sometimes, the quality of provided services may not be satisfactory to business units when the procedures and workflows are standardized in the SSC [17].

Besides cost savings, other potential benefits of shared services include more timely and accurate data, and better decision-making support [40], improved organizational learning and innovation [8], and follow-up organizational transformation [38]. While these potential benefits are discussed in literature, a more pertinent issue to businesses is to show these effects in measurable financial terms. In current literature, the benefits are identified either through conceptual discussions or in case studies. There is a need for large-scale empirical work to examine and verify the value of shared services [31].

2.2 Effects of IT at firm and process level

In IS literature, the effects of IT use are at the center of IT business value research, including user satisfaction, individual impact, organizational impact and societal impact [7]. Organizational impact takes effect at the firm level and process level, with process performance as an intermediating factor for business value measured at the firm level [21].

At the firm level, when IT systems of an organization are considered in aggregate, IT business value can be captured by how much IT investments affect a company’s financial performance that is measured by common accounting measures such as operational efficiency, productivity and profitability. For example, Brynjolfsson and Hitt [6] find that investments in IT assets can boost productivity and consumer surplus, but not profitability. Another means for assessing the firm-level IT value is by the impacts of IT initiative announcements on a company’s market value (for example, the study by [10]) which reflects investors’ expectations about the company’s future financial performance. Moreover, the business value of enterprise IT infrastructures is assessed at the firm level because IT infrastructures connect and integrate multiple units so that the impacts expand across business units and functions [5].

Information systems can have direct impacts on business processes where more tangible benefits are generated [4]. At the business process level, IT effects are assessed by how much information systems change the business process performance. For example, Ayal and Seidmann [2] point out how an ERP system implementation at a medical center improved the clinical process lead time which led to improvements in revenue and physician satisfaction. Ray et al. [30] show how IT resources and capabilities affect customer service process performance. In these studies, business processes affected by the information systems are identified and process-specific performance metrics are used for measuring the impacts of the given information systems. The metrics vary from process to process. The perceptual metrics developed by Tallon and Kraemer [39] for measuring IT business value at the process level include sets of metrics for different categories of business processes. Empirical studies with objective metrics, such as the above mentioned [2, 30], select the particular process in the given organization to evaluate the impacts of IT on this process.

In studying IT effects at the process level, researchers also note that the business value of IT is enhanced when companies change or redesign their processes to leverage IT capabilities. Based on an IS executive survey, Grover and Teng [16] find that managers perceive higher process productivity gains when they think about more changes in the processes. Devaraj and Kohli [12] examine IT investment and firm performance in healthcare, where they find IT investments in conjunction with business process redesign lead to higher net patient revenue per day, net patient revenue per admission, and customer satisfaction.

One notable feature in IT business value research is the revelation of mediating effects between IT assets and business value. In a conceptual framework, IS assets generate impacts on business process that in turn result in changes in firm performance, with intermediate impacts on business process performance [34, 45]. Based on this framework, some recent empirical studies examined IT-related capabilities as intermediate variables that mediate the effects of IT assets on firm performance. For example, in a meta-analysis study of interorganizational IT value, Mandrella et al. [24] consider the interorganizational IT capabilities as the mediator for the relationship between interorganizational IT resources and business value. Similarly, Wamba et al. [42] find that the value of big data analytics is mediated by process-oriented dynamic capabilities that is the extent to which a firm changes business processes to enhance coordination, integration, cost reduction and business intelligence. While these empirical studies admit the mediated effects, the mediators are process-related capabilities that are different from the actual performance of the business processes.

In summary, the business value of information systems can be assessed at firm level and at process level. Although prior studies have noted the mediating effects of business processes for the firm-level IT business value, empirical research is scarce in examining such effects, specifically the indirect effects of IT resources on firm performance through the mediation of process performance. In this study, we follow this line of research to examine the impacts of finance shared services, an IT-enabled organizational form for offering support business services, on firm financial performance with the mediated effect through process performance.

3 Finance shared services and firm profitability

In a recent survey of over 300 companies, nearly ninety percent of shared services are for finance and accounting functions [11], that include accounts payable, accounts receivable, and financial reporting that are necessary support functions for the operations of other business units [28]. In this section, we will discuss the effects of finance shared services on business performance, at both firm level and process level. These effects are also depicted in Fig. 1.

Fig. 1
figure 1

The effects of finance shared services on profitability

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3.1 Direct effect on firm profitability

By shared services, selected business functions that are previously duplicated in individual business units will be consolidated into the SSC, a semi-autonomous unit at the corporate level or regional level. The SSC does not belong to any business unit, but performs the functions for the other business units. To serve the business units, it resorts to information systems that are available to and shared by these units. These IT resources, including hardware, software, networks, databases and data, become a part of the enterprise IT infrastructure as they connect with the business units and integrate the workflows digitally [5]. The centralized operation of IT infrastructure helps reduce the cost for managing these IT resources. The operation of shared services influences the performance of given business functions for multiple business units, which manifests as a firm-wide impact instead of local impact within individual units. One major effect is that with the consolidation of business functions, business units do not need to duplicate the same functions, reducing the consumption of resources [33]. In this sense, the establishment of shared services directly affects firm performance.

Similarly, finance shared services model consolidates the finance and accounting functions and the supporting IT systems across business units, which will have direct effects on firm performance [44]. When business units have their own individual finance and accounting functions, duplicate resources such as personnel and supporting information systems are used to execute the same financial management processes in these units. In contrast, finance shared services model lets business units obtain the common finance and accounting functions that are performed at a centralized unit with the support of enterprise IT infrastructure. This eliminates the duplicate divisional finance and accounting functions, leading to cost savings that have a direct impact on firm profitability.

Hypothesis 1

Implementation of finance shared services has a positive effect on firm profitability.

3.2 Effect on finance and accounting process

In addition to the aforementioned firm-level effect, shared services model also affects the performance of business functions at process level. First, data used in processing the business functions are in a uniform format and are shared through centralized IT infrastructure, which increases visibility into the processes [13]. Second, relevant workflows and procedures are consolidated and shared by business units so that the processes can be streamlined and coordinated [9]. Hence, the establishment of shared services will impact the process performance of the business functions. The process-level effects can be measured by process-specific metrics. When it comes to finance shared services, we expect to observe similar process-level effects that can be assessed by metrics pertaining to the finance and accounting functions.

In both practice and research, working capital efficiency is recognized as a performance measurement for the financial management process. According to a survey of chief financial officers in Fortune 1000 companies, the two most important financial tasks are financial planning and budgeting, and working capital management [15]. Financial planning and budgeting is part of financial management strategy, while working capital management captures the “day-to-day” financial management activities. Working capital is defined as the excess of current assets over current liabilities. Accounts payable, accounts receivable and inventory are the major components of noncash portion of working capital. The working capital efficiency measures how quickly assets are turned into cash, and is often determined by the accounts payable turnaround cycle, inventory turnaround cycle and accounts receivable turnaround cycle [29]. It is the direct result of finance and accounting management.

When a firm moves to the finance shared service model from distributed divisional model for finance and accounting functions, it builds the technology infrastructure for centralized processing of these functions. As part of the infrastructure, centralized databases replace the separate divisional databases to gather and store financial data from individual units. Data on inventory, accounts payable, accounts receivable, that are previously scattered or even hidden in local databases of business units, are made available across the units through this platform. Such enhanced data transparency allows timely track of inventory and cash flow throughout the internal value chain.

Furthermore, the move to finance shared services eliminates the redundant steps in performing the finance and accounting tasks when these tasks are consolidated into the SSC. In addition, when these tasks are executed on a common digital platform for all business units, they further streamline the coordination between units in managing the movement of goods and cash because the divisional barriers in information exchange are reduced. Thus, moving to finance shared services model can shorten the cycle time of accounts payable, inventory turnaround and accounts receivable, resulting in an increase in working capital efficiency.

Hypothesis 2

Implementation of finance shared services has a positive effect on working capital efficiency.

3.3 Mediated effect

Since the business functions fulfilled by the shared services model are used by multiple business units, the effects of shared services on business processes shall raise to the firm level [32]. This is consistent with the arguments in IT business value research regarding the mediation of process performance for IT effects at firm-level. Specifically, from the lens of IT business value, the investment in IT resources can improve the performance of business processes that in turn impacts firm financial performance [21, 34]. In other words, the impacts of IT resources on firm performance are mediated by business process performance. Following this line of reasoning, we argue that shared services, as an IT-enabled organizational form for offering support services, can impact firm performance through the mediation of business processes performance.

When it comes to finance shared services, this mediating effect occurs via the financial and accounting management process that can be measured by working capital efficiency. Working capital management is not only an important task for financial function, but it also has an impact on firm profitability. As firms make investments into current assets and rely on current liabilities for financing, working capital management affects the value of future cash flows. The efficiency of working capital management can shorten the operating and cash cycles, and eventually increase profitability [26]. In other words, working capital efficiency has a positive effect on profitability. Combining this effect with the positive effect of finance shared services on working capital efficiency which is stated by Hypothesis 2, we take one step further to propose for the mediated effect of finance shared services on profitability. Specifically, the implementation of finance shared services improves a firm’s working capital efficiency for the finance and accounting management process, which in turn positively affects profitability at the firm level. This is presented as Hypothesis 3 as below.

Hypothesis 3

The effect of finance shared services implementation on firm profitability is mediated by working capital efficiency.

In summary, finance shared services have impacts on firm performance through two channels. First, running on centralized enterprise IT infrastructure, finance shared services reduce the consumption of organizational resources that directly affects firm profitability. Second, finance shared services centralize and standardize workflow and procedures of finance and accounting management, affecting the performance of working capital management at the process level. Furthermore, this effect on working capital efficiency in turn impacts performance at firm level, and hence working capital efficiency functions as the mediator for the effect of finance shared services on firm performance.

4 Research method

4.1 Data description

We empirically tested our hypotheses with a sample of publicly listed Chinese companies whose stocks are traded in Shanghai Stock ExchangeFootnote 1 and Shenzhen Stock Exchange.Footnote 2 We took the following steps to collect our data. First, we compiled the list of firms that are publicly traded on the aforementioned stock exchanges. Second, we collected firms’ financial performance data from the WIND databaseFootnote 3 and CSMAR database.Footnote 4 Third, we collected firms’ annual reports from the stock exchanges’ databases and companies’ websites. Using a Python program, we searched through these annual reports to find out if and when a firm implemented finance shared services. Furthermore, we used Sina financial news,Footnote 5 and reports from China chapter of the Association of Chartered Certified Accounts (ACCA),Footnote 6 to cross-check and supplement data on the implementation of finance shared services.

We chose to collect data for the period of year 2008–2019. From the annual reports and financial news we collected, we found that the first implementation of finance shared services in China was in 2006. In 2007, only four firms implemented finance shared services. Considering the limited number of observations in year 2006 and 2007, we selected our sample data starting from year 2008. Moreover, the COVID-19 pandemic broke out in early 2020 and since then, the economic activities have slowed down significantly. Hence, to avoid the influence of the pandemic, we included in our sample the data up to year 2019.

Furthermore, financial sectors differ from other sectors such as manufacturing and agriculture in production and inventory management. Since the measurement of working capital efficiency uses inventory data, we removed financial sectors from our sample. After excluding firms in the financial sector and those with incomplete data, we obtained 21,018 observations in our sample. Table 1 shows the distribution of all observations across industries and over the period from year 2008 to 2019.

Table 1 Firm-year observations
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4.2 Variables

We use a dummy variable (FSS) to indicate if the firm adopts finance shared services. It has the value of 1 if shared financial service is adopted, and 0 otherwise. Firm profitability is measured by return on assets (ROA). The working capital efficiency is measured by the days working capital (DWC), which shows the cycle of turning assets to cash. The variable is calculated as the sum of days accounts receivable and inventory turnaround days, subtracting days accounts payable [14]. In addition, we also use two other variables for working capital efficiency. One is inventory turnaround days (ITD), which is the 360 divided by the ratio of operating cost over average inventory. The other is operating cycle (Bcycle) which is the sum of days accounts receivable and inventory turnaround days.

We also include the following control variables. Firm size (Size) is measured by the log of the total assets, and firm age (FmAge) is the number of years the firm has been public. Growth rate (Growth) shows the ratio of change in annual operating income. Leverage (Lev) is the ratio of total liabilities over total assets. SOE is a dummy variable indicating if the firm is state-owned enterprise. Lerner index (LI) measures the firm’s market power. TOP1 is the proportion of shares owned by the largest shareholder. Ind is the ratio of independent directors on the board of directors. Dual is a dummy variable indicating if the CEO also is the chairperson of the board of directors. BoardSize is the size of the board of directors. The variables and their descriptions are listed in Table 2.

Table 2 Variables
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4.3 Data analysis

Following the approach in Sobel [37], and Baron and Kenny [3], we estimate the following models to test our hypotheses, including the mediating effects. Model (1) tests the direct effect of FSS on working capital management efficiency, represented by DWC. Model (2) tests the direct effect of FSS on firm profitability, ROA. Model (3) tests the indirect effect of FSS on ROA with DWC considered. In the models, the subscript t is the year of the observation, and Control is a vector of the control variables identified in the above subsection, including Size, Lev, Growth, FmAge, SOE, Top1, Ind, BoardSize and LI. The models are estimated by OLS, and the coefficients’ t-statistics are calculated using heteroskedasticity-robust standard errors. The estimate results, including the direct and indirect effects of FSS, are summarized in Table 3. The heteroskedasticity-robust t-statistics are included in parentheses.

$$DWC_{t} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} +\upgamma$$
(1)
$$ROA_{t} = \beta_{0} + \beta_{1} \,FSS_{t} + \beta_{2} \,Control_{t} +\upvarepsilon$$
(2)
$$ROA_{t} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,DWC_{t} + \rho_{3} \,Control_{t} +\updelta$$
(3)
Table 3 Estimate results for FSS effects on ROA via DWC
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The Model (1) and Model (3) are then adapted to test the mediating effect of inventory turnaround days (ITD), by substituting ITD for DWC. The models are described as the below Eqs. (4) and (5), and are estimated by OLS with heteroskedasticity-robust standard errors. The estimate results are summarized in Table 4 under Model (4) and Model (5). Next, we adapt the models similarly to test the mediating effect of operating cycle (Bcycle) and the results are summarized under Model (6) and Model (7) in Table 4.

$$ITD_{t} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} +\upgamma$$
(4)
$$ROA_{t} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,ITD_{t} + \rho_{3} \,Control_{t} +\updelta$$
(5)
$$Bcycle_{t} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} + {\upgamma }$$
(6)
$$ROA_{t} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,Bcycle_{t} + \rho_{3} \,Control_{t} + {\updelta }$$
(7)
Table 4 Estimate results for FSS effects on ROA via ITD and Bcycle
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Adopting the method by Sobel [37], Baron and Kenny [3], we calculate the indirect effects of FSS on profitability through the three different variables for measuring working capital efficiency. These effects are presented in Tables 3 and 4, along with the direct effects and total effects of FSS. Specifically, the indirect effect of FSS through DWC is 0.076 (p value < 0.01), indirect effect of FSS through ITD is 0.058 (p value < 0.01), and indirect effect of FSS through Bcycle is 0.079 (p value < 0.01).

Considering the possibility of lagged effects on firm profitability, we also examine the direct and indirect effects of FSS on ROA one year later, denoted as \(ROA_{t + 1}\), where t is the year of the observation. Specifically, we estimate the following models using OLS with heteroskedasticity-robust standard errors.

$$DWC_{t + 1} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} + {\upgamma }$$
(1.1)
$$ROA_{t + 1} = \beta_{0} + \beta_{1} \,FSS_{t} + \beta_{2} \,Control_{t} + {\upvarepsilon }$$
(2.1)
$$ROA_{t + 1} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,DWC_{t + 1} + \rho_{3} \,Control_{t} + {\updelta }$$
(3.1)
$$ITD_{t + 1} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} + {\upgamma }$$
(4.1)
$$ROA_{t + 1} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,ITD_{t + 1} + \rho_{3} \,Control_{t} + {\updelta }$$
(5.1)
$$Bcycle_{t + 1} = \alpha_{0} + \alpha_{1} \,FSS_{t} + \alpha_{2} \,Control_{t} + {\upgamma }$$
(6.1)
$$ROA_{t + 1} = \rho_{0} + \rho_{1} \,FSS_{t} + \rho_{2} \,Bcycle_{t + 1} + \rho_{3} \,Control_{t} + {\updelta }$$
(7.1)

The estimate results are presented in Table 5. Our results show significant effects of FSS on ROA of the next year, both directly and indirectly through the mediation of working capital efficiency. In Table 6, we gather from Tables 3, 4 and 5 the direct and indirect effects of FSS on the same-year ROA and next-year ROA through the three different mediating variables for explicit comparison.Footnote 7

Table 5 estimate results with lagged effect
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Table 6 Comparison of direct and indirect effects of FSS
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Our results support the three hypotheses we propose in Sect. 3. Specifically, we find that finance shared services positively affect ROA directly and indirectly through working capital efficiency. Furthermore, the indirect effects are significant with all three measurements of working capital efficiency we examine: days working capital, inventory turnaround days, and operating cycle.

Looking across these three working capital efficiency measurements, we notice that the indirect effects through inventory turnaround days are slightly lower than those through days working capital and operating cycle. This implies that the performance of accounts receivable and accounts payable plays a more important role than inventory turnaround in mediating the impacts of finance shared services on ROA. A possible explanation for this difference may be that finance shared services are often deployed for processing accounts receivable and accounts payable tasks.

Another interesting finding from our analysis is about the lagged effects. Compared with the same year effects, the lagged direct effects are obviously stronger. In other words, the direct benefits from using this service delivery model start small and increase during the year after the initial deployment. In comparison, the indirect effects through the working capital efficiency increase at a smaller scale with one-year lag, with the same pattern among the three mediating variables.

4.4 Robustness tests

We use tests to examine the robustness of our models and results. The first robustness test is propensity score matching (PSM) test. Specifically, we select the observations with finance shared services (FSS = 1). In our sample, there are 925 observations that have FSS = 1. We summarize these observations in Table 7. For these 925 observations, we match them with those without finance shared services (FSS = 0) in firm size (Size), age (FmAge), sales growth (Growth), state ownership (SOE), ownership concentration (Top1), composition of board of directors (Ind, Dual, BoardSize), Lerner index (LI) and industry, year. We next use the nearest neighbor matching in propensity score estimation. This gives us 1850 matched observations in total for the PSM test.

Table 7 Firm-year observations with finance shared services (FSS = 1) for PSM test
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We then estimate the effect of FSS on ROA using this sample and the results are summarized in Table 8. The PSM test results show that the estimated coefficient of FSS is 0.666, positive and significant (p value < 0.05). This is slightly larger than the total effect of FSS on same-year ROA in Table 3, but smaller than the total effect of FSS on next-year ROA in Table 7. Overall, PSM results show that firms with finance shared services have higher ROA than those in the same industry and with comparable characteristics, and are consistent with the results in Sect. 4.3 using the complete sample.

Table 8 PSM test results
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The second test is Heckman test for sample selection bias. We use the number of subsidiaries (Subs) as the instrumental variable in a two-stage least squares (2SLS) test. The 2SLS Heckman test results are in Table 9. At stage 1, the instrumental variable Subs is positively associated with FSS (p value < 0.01), indicating that the number of subsidiaries is an effective proxy for FSS. At stage 2, the coefficient of FSS is 0.541 (p value < 0.01), which is comparable to the total effect of FSS on same-year ROA in Table 3. These results further confirm the positive effect of FSS on ROA.

Table 9 Two-stage least squares (2SLS) Heckman test results
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In summary, the above test results provide further support for the positive association between shared financial service and ROA, which indicates the robustness of our empirical models.

5 Discussions

In this study, we examined the finance shared services impacts on firm profitability, both directly and indirectly via the mediation of working capital efficiency. The data analysis results show that firms with finance shared services have higher ROA. In addition, these firms also show better working capital efficiency with shorter days working capital, inventory turnaround days and operational cycle, that in turn contributes to ROA.

5.1 Implications for IS research

Our study contributes to IT business value research by providing an empirical investigation on how the IT effects on firm profitability is mediated by process-level performance. Although prior research has studied IT value at both firm level and process level, the mediation effect of process-level performance is discussed mainly in conceptual frameworks, such as in Schryen [34], Winkler and Wulf [43], and Mandrella et al. [24]. Our study extends this line of research with empirical evidence for both direct and mediated IT impacts on firm financial performance. Specifically, we show that, with shared services, IT infrastructure and business functions fulfillment are centralized, leading to simultaneous impacts on firm performance and on business processes. In addition, the business process performance further affects firm-level performance, engendering the mediated effect. This suggests that process-oriented approach and firm-level evaluation can complement each other in assessing IT value. Our findings offer clear empirical support for the mediated IT business value that conceptual frameworks proposed. This does not only enrich the present IT business value research, but also encourages future research to further study the transition of IT business value from one level to the other.

Another contribution to IS research is that our study expands the types of information systems and technologies that are studied in IT business value research. As there have been various forms of information systems and technologies, researchers have used different approaches for representing IT resources in studying IT business value. For example, organizational IT capital or IT investment amount are used as inputs for production to assess IT impacts on productivity, customer satisfaction and market valuation [19, 25]. IT initiative announcements are collected and encoded as signals for IT investment events in studies of market valuation of IT investments [10, 18]. A third approach is to evaluate the benefits of a particular type of IT systems such as ERP systems [20] or data analytics applications [42]. In our study, the IT resource we evaluated is shared services model. Shared services model differs from the other IT resource proxies as it integrates IT infrastructure, business processes and organizational governance structure. The impacts of shared services model exhibit combinatorial effects of IT resources on these three aspects: technological infrastructure, processes and organizational structure. Such a feature makes it necessary to account for both direct and mediated impacts of IT on firm performance. Thus, our study on finance shared services brings attention to this IT-enabled organizational form in the field of IT business value research, and exemplifies how such an IT resource can be evaluated.

5.2 Implications for research on shared services

This study expands our understandings about the impacts of shared services as an IT-enabled organizational form for providing support business functions. Although the benefits of shared services are discussed in literature, these discussions are about the expected benefits researchers derive from conceptual analyses or case studies, as noted in a literature review by Richter and Brühl [31]. Our study contributes to this line of research with a cross-sectional empirical analysis using panel data of firms that implemented shared services from year 2008 to 2019. We collected data on a large sample of firms and find significant positive relationships between the implementation of shared services and profitability. This adds a valuable extension to the research on shared services, offering evidence for shared services benefits with statistical significance.

Moreover, our results partly address the concerns about the effects of shared services on business processes due to the centralization of resources from the decentralized business divisions. In some case studies, the impacts of shared services on the outcomes of business functions are questioned by divisions that find their local needs not satisfied as the standardized processes are instituted through SSCs [17]. Such dissatisfaction may trigger resistance to the efforts of designing common processes for the business functions, like what happened in the case study of the IT shared service in a public university [27]. This may result in missing the objective of efficiency gains from consolidating support business services [36]. While such concerns are derived from conceptual analyses, our empirical analyses with a large sample show that shared services do have positive effects on performance enterprise-wide through the centralization of IT infrastructure and business processes.

For practice, this study also provides important implications for identifying and obtaining value from shared services. First, our findings provide clear evidence for the direct benefits of shared services with a large-scale empirical study which reaffirms the initial motivation of adopting this service delivery model to obtain cost savings. Second, the significant mediating effect of working capital efficiency tells that the use of finance shared services is associated with higher working capital efficiency which in turn brings about higher profitability. This finding encourages businesses to look beyond the direct cost savings for additional business value that shall be derived from improving the processes that are executed by shared services. Third, since shared services run on centralized IT infrastructure and business functions, the impacts are enterprise-wide, not confined to business divisions. Hence, in practice, management shall persist in implementing shared services while facing some challenges from individual divisions because the benefits can be reaped in the scope of the whole enterprise.

5.3 Limitations and future research

Our results are not without caveats. First, we chose finance shared services as our research context and developed our theoretical model and empirical analyses accordingly. This may leave the generalizability of our model and results to be challenged although we believe our analyses can be adapted to other types of shared services. In the meantime, this points out an opportunity for future research. Specifically, in future research, other shared services such as human resource management (HRM) shared services can be evaluated similarly from the viewpoint of IT business value, with the performance of HRM process as the mediator for its impacts on firm-level business value. Taking one step even further, we can expand the research contexts to other types of IT resources to investigate the mediation of process performance on IT impacts on business value. For instance, when blockchain is deployed, its impacts on firm’s business value can also comprise direct effects and indirect mediated effects through related business processes.

Second, we used three different measurements for the performance of the finance and accounting process in this study while there may exist other measurements. Our measurements, days working capital, inventory turnaround days and operating cycle, focus on the process efficiency. Other aspects of the process performance such as productivity and service quality are not considered. Therefore, future research can extend to include additional mediating variables for measuring process performance.

Third, our study has limited discussion about the influences of business environment on the effects of shared services. Business environment factors were included as control variables in our data analyses, such as firm size, leverage ratio and corporate governance. But we admit that business environment influences IT business value in general and the benefits of shared services in particular. Thus, it would be an interesting topic for future research to examine how the effects of shared services vary in different business environments.

6 Conclusion

Shared services have become an important organizational form for delivering support business functions as services to internal users. With this model, business functions are enabled by centralized IT infrastructure, and are fulfilled by centralized business processes under the common procedures followed by business divisions. These characteristics impact firm performance directly through the consolidation of IT infrastructure and business processes. They also impact the performance of related business processes via improved data transparency, process visibility, and streamlined workflow, which in turn affect financial performance at firm level. Specifically, in the context of finance and accounting management, we find that firms with finance shared services have higher profitability at firm level, and such a relationship is mediated by working capital efficiency which is a key process-level performance measurement of finance and accounting functions. In closing, our study extends research in IT business value and shared services, and future research could build on our findings to further expand our knowledge in these areas.