Advertisement

Information Systems Frontiers

, Volume 21, Issue 1, pp 213–227 | Cite as

An examination of the long-term business value of investments in information technology

  • Vincent J. SheaII
  • Kevin E. Dow
  • Alain Yee-Loong ChongEmail author
  • Eric W. T. Ngai
Article

Abstract

In this paper, we examine the effects of investments in Information Technology (IT) on the long term business values of organizations. The regression discontinuity design is used in this research to examine eight hundred and ten IT investment announcements collected from the period 1982–2007. Our results found that press releases can affect the market value of a firm by possibly providing investors with a better idea of a firm’s current and future operations and strategy. On the other hand, these press releases also appear to attract more transient investors. The attraction of transient investors likely suggests the market believes the IT investing firm is serious about its potential for growth and expansion.

Keywords

IT investments Regression discontinuity design Event study Business value 

Notes

Acknowledgements

Alain Chong would like to acknowledge the support from National Science Foundation of China (NSFC). The project is partially supported by NSFC No. 71402076.

References

  1. Agrawal, M., Kishore, R., & Rao, H. (2006). Market reactions to E-business outsourcing announcements: an event study. Information & Management, 43(7), 861–873.Google Scholar
  2. Asekome, M. O., & Agbonkhese, A. O. (2015). Macroeconomic variables, stock market bubble, meltdown and recovery: evidence from Nigeria. Journal of Finance, 3(2), 25–34.Google Scholar
  3. Alpar, P., & Kim, M. (1990). A microeconomic approach to the measurement of information technology value. Journal of Management Information Systems, 7(2), 55–69.Google Scholar
  4. Armstrong, C., & Sambamurthy, V. (1999). Information technology assimilation in firms: the influence of senior leadership and IT infrastructures. Information Systems Research, 10(4), 304–327.Google Scholar
  5. Asquith, P., Mikhail, M., & Au, A. (2005). Information content of equity analyst reports. Journal of Financial Economics, 75(2), 245–282.Google Scholar
  6. Barua, A., Kriebel, C. H., & Mukhopadhyay, T. (1995). Information technologies and business value - an analytic and empirical-investigation. Information Systems Research, 6(1), 3–23.Google Scholar
  7. Battistin, E., & Rettore, E. (2002). Testing for programme effects in a regression discontinuity design with imperfect compliance. Journal of the Royal Statistical Society: Series A (Statistics in Society), 165(1), 39–57.Google Scholar
  8. Bharadwaj, A. S., Bharadwaj, S. G., & Konsynski, B. R. (1999). Information technology effects on firm performance as measured by Tobin's q. Management Science, 45(7), 1008–1024.Google Scholar
  9. Brealey, R., Myers, S., & Marcus, A. (2007). Fundamentals of corporate finance (5th ed.). Boston: McGraw-Hill.Google Scholar
  10. Brynjolfsson, E. (1993). The productivity paradox of information technology. Communications of the ACM, 36(12), 67–77.Google Scholar
  11. Brynjolfsson, E., & Hitt, L. (1996). Paradox lost? Firm-level evidence on the returns to information systems spending. Management Science, 42(4), 541–558.Google Scholar
  12. Bushee, B. J., & Noe, C. F. (2000). Corporate disclosure practices, institutional investors, and stock return volatility. Journal of Accounting Research, 38(3), 171–202.Google Scholar
  13. Campbell, D. T., & Stanley, J. C. (1963). Experimental and quasi-experimental designs for research on teaching. Chicago: American Educational Research Association.Google Scholar
  14. Carr, N. G. (2003). IT doesn’t matter. Harvard Business Review, 81(5), 41–59.Google Scholar
  15. Chan, Y. C. (2014). How does retail sentiment affect IPO returns? Evidence from the internet bubble period. International Review of Economics & Finance, 29, 235–248.Google Scholar
  16. Chatterjee, D., Pacini, C., & Sambamurthy, V. (2002). The shareholder-wealth and trading-volume effects of information-technology infrastructure investments. Journal of Management Information Systems, 19(2), 7–42.Google Scholar
  17. Chatterjee, D., Richardson, V. J., & Zmud, R. W. (2001). Examining the shareholder wealth effects of announcements of newly created CIO positions. MIS Quarterly, 25(1), 43–70.Google Scholar
  18. Chong, A. Y. L., & Bai, R. (2014). Predicting open IOS adoption in SMEs: an integrated SEM-neural network approach. Expert Systems with Applications, 41(1), 221–229.Google Scholar
  19. Chou, D. C., Tan, X., & Yen, D. C. (2004). Web technology and supply chain management. Information Management & Computer Security, 12(4), 338–349.Google Scholar
  20. Compass (2009). Aim low: The key to IT value contribution lies deep within business processes., from http://www.compassmc.com/admin/uploaded/aim%20low.pdf.
  21. Cook, T. D. (2008). "waiting for life to arrive": a history of the regression-discontinuity design in psychology, statistics and economics. Journal of Econometrics, 142(2), 636–654.Google Scholar
  22. Davis, L., Dehning, B., & Stratopoulos, T. (2003). Does the market recognize IT-enabled competitive advantage? Information & Management, 40(7), 705.Google Scholar
  23. Dehning, B., Pfeiffer, G. M., & Richardson, V. J. (2006). Analysts' forecasts and investments in information technology. International Journal of Accounting Information Systems, 7(3), 238–250.Google Scholar
  24. Dehning, B., Richardson, V. J., & Zmud, R. W. (2003). The value relevance of announcements of transformational information technology investments. MIS Quarterly, 27(4), 637–656.Google Scholar
  25. Dewan, S., & Fei, R. (2007). Risk and return of information technology initiatives: evidence from electronic commerce announcements. Information Systems Research, 18(4), 370–394.Google Scholar
  26. Dos Santos, B., Peffers, G. K., & Mauer, D. C. (1993). The impact of information technology investment announcements on the market value of the firm. Information Systems Research, 4, 1–23.Google Scholar
  27. Duan, C., Grover, V., & Balakrishnan, N. R. (2009). Business process outsourcing: an event study on the nature of processes and firm valuation. European Journal of Information Systems, 18(5), 442–457.Google Scholar
  28. Gartner Group (2013). Gartner Says Worldwide IT Spending Forecast to Reach $3.7 Trillion in 2013, http://www.gartner.com/newsroom/id/2292815 [accessed 18th of February, 2016].
  29. Hayes, D. C., Hunton, J. E., & Reck, J. L. (2000). Information systems outsourcing announcements: investigating the impact on the market value of contract-granting firms. Journal of Information Systems, 14(2), 109.Google Scholar
  30. Hayes, D. C., Hunton, J. E., & Reck, J. L. (2001). Market reactions to ERP implementation announcements. Journal of Information Systems, 15(1), 3.Google Scholar
  31. Hendrick, K. B., Singhal, V. R., & Stratman, J. K. (2007). The impact of enterprise systems on corporate performance: a study of ERP, SCM, and CRM system implementations. Journal of Operations Management, 25(1), 65–82.Google Scholar
  32. Hunter, S. D. (2003). Information technology, organizational learning, and the market value of the firm. Journal of Information Technology Theory and Application, 5(1), 1–28.Google Scholar
  33. Im, K., Dow, K., & Grover, V. (2001). A reexamination of IT investment and the market value of the firm: an event study methodology. Information Systems Research, 12, 103–117.Google Scholar
  34. Imbens, G., & Lemieux, T. (2008). Special issue editors' introduction: the regression discontinuity designs' theory and applications. Journal of Econometrics, 142, 611–614.Google Scholar
  35. Ke, B., & Petroni, K. (2004). How informed are actively trading institutional investors? Evidence from their trading behavior before a break in a string of consecutive earnings increases. Journal of Accounting Research, 42(5), 895–927.Google Scholar
  36. Khallaf, A., & Skantz, T. R. (2007). The effects of information technology expertise on the market value of a firm. Journal of Information Systems, 21(1), 83–105.Google Scholar
  37. Kobelsky, K., Hunter, S., & Richardson, V. J. (2008a). Information technology, contextual factors and the volatility of firm performance. International Journal of Accounting Information Systems, 9(3), 154–174.Google Scholar
  38. Kobelsky, K., Richardson, V. J., Smith, R. E., & Zmud, R. W. (2008b). Determinants and consequences of firm information technology budgets. Accounting Review, 83(4), 957–995.Google Scholar
  39. Leamer, E. E. (1983). Let’s take the con out of econometrics. American Economic Review, 73, 31–43.Google Scholar
  40. Li, M. F., & Ye, L. R. (1999). Information technology and firm performance: linking with environmental, strategic and managerial contexts. Information & Management, 35(1), 43–51.Google Scholar
  41. Li, T., Van Heck, E., & Vervest, P. (2009). Information capability and value creation strategy: advancing revenue management through mobile ticketing technologies. European Journal of Information Systems, 18(1), 38–51.Google Scholar
  42. Loveman, G. W. (1994). An assessment of the productivity impact of information technologies. In T. J. Allen & M. S. S. Morton (Eds.), Information technology and the corporation of the 1990s: Research studies B2 - information technology and the corporation of the 1990s: Research studies. Oxford: Oxford University Press.Google Scholar
  43. Lui, A. K., Ngai, E. W., & Lo, C. K. (2015). Disruptive information technology innovations and the cost of equity capital: the moderating effect of CEO incentives and institutional pressures. Information & Management, 53(3), 345–354.Google Scholar
  44. Mahmood, M. A., & Mann, G. J. (1993). Measuring the organizational impact of information technology investment: an exploratory study. Journal of Management Information Systems, 10(1), 97–122.Google Scholar
  45. Mithas, S., & Rust, R. T. (2016). How information technology strategy and investments influence firm performance: Conjecture and empirical evidence. MIS Quarterly, 40(1), 223–245.Google Scholar
  46. Mitra, S. (2005). Information technology as an enabler of growth in firms: an empirical assessment. Journal of Management Information Systems, 22(2), 279–300.Google Scholar
  47. Mittal, N., & Nault, B. (2009). Investments in information technology: indirect effects and information technology intensity. Information Systems Research, 20(1), 140.Google Scholar
  48. Nagm, F., & Kautz, K. (2008). The market value impact of IT investment announcements - an event study. JITTA : Journal of Information Technology Theory and Application, 9(3), 61.Google Scholar
  49. Oh, W., Gallivan, M. J., & Kim, J. W. (2006a). The market's perception of the transactional risks of information technology outsourcing announcements. Journal of Management Information Systems, 22(4), 271–303.Google Scholar
  50. Oh, W., Kim, J. W., & Richardson, V. J. (2006b). The moderating effect of context on the market reaction to IT investments. Journal of Information Systems, 20(1), 19–44.Google Scholar
  51. Panko, R. R. (2008). IT employment prospects: beyond the dotcom bubble. European Journal of Information Systems, 17(3), 182–197.Google Scholar
  52. Rai, A., Patnayakuni, R., & Patnayakuni, N. (1996). Refocusing where and how IT value is realized: an empirical investigation. Omega-International Journal of Management Science, 24(4), 399–412.Google Scholar
  53. Ritter, J., & Warr, R. (2002). The decline of inflation and the bull market of 1982-1999. The Journal of Financial and Quantitative Analysis, 37(1), 29–61.Google Scholar
  54. Roztocki, N., & Weistroffer, H. R. (2015). Investments in enterprise integration technology: an event study. Information Systems Frontiers, 17(3), 659–672.Google Scholar
  55. Serwer, A. (1997). The scariest tech stock ever! Fortune, 136(9), 223–224.Google Scholar
  56. Shadish, W. R., Cook, T. D., & Campbell, D. T. (2002). Experimental and quasi-experimental designs for generalized causal inference. Boston: Houghton Mifflin.Google Scholar
  57. Subramani, M., & Walden, E. (2001). The impact of e-commerce announcements on the market value of firms. Information Systems Research, 12(2), 135.Google Scholar
  58. Tam, K. Y. (1998). The impact of information technology investments on firm performance and evaluation: evidence from newly industrialized economies. Information Systems Research, 9(1), 85–98.Google Scholar
  59. Tanriverdi, H., & Ruefli, T. (2004). The role of information technology in risk/return relations of firms. Journal of the Association of Information Systems, 5(11–12), 421–447.Google Scholar
  60. Thiesse, F., Al-Kassab, J., & Fleisch, E. (2009). Understanding the value of integrated RFID systems: a case study from apparel retail. European Journal of Information Systems, 18(6), 592–614.Google Scholar
  61. Thistlethwaite, D. L., & Campbell, D. T. (1960). Regression-discontinuity analysis: an alternative to the ex post facto experiment. Journal of Educational Psychology, 51(6), 309–317.Google Scholar
  62. Verrecchia, R. (2001). Essays on disclosure. Journal of Accounting & Economics, 32, 97–180.Google Scholar
  63. Weill, P. (1992). The relationship between investment in information technology and firm performance: a study of the value manufacturing sector. Information Systems Research, 3, 307–333.Google Scholar
  64. Wooldridge, J. (2015). Introductory econometrics: A modern approach. Mason: Nelson Education.Google Scholar

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  • Vincent J. SheaII
    • 1
  • Kevin E. Dow
    • 2
  • Alain Yee-Loong Chong
    • 2
    Email author
  • Eric W. T. Ngai
    • 3
  1. 1.St. John’s UniversityNew YorkUSA
  2. 2.Nottingham University Business School China, University of NottinghamNingboChina
  3. 3.Department of Management and MarketingHong Kong Polytechnic UniversityKowloonHong Kong

Personalised recommendations