Article2008

Determinants and Consequences of Firm Information Technology Budgets

Kevin W. Kobelsky · Vernon J. Richardson · Rod E. Smith · Robert W. Zmud

178 citations0/0 files storedThe Accounting Review

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Information Technology Governance and Strategy Accounting and Organizational Management Corporate Governance and Management

Abstract

ABSTRACT: For most firms, the information technology (IT) budget represents a major element in the overall firm budget, and IT budget decisions often have significant operational and strategic impacts on the business processes in the firm’s value chain. In this paper we use a large unique data set to examine the extent to which IT budgets are affected by environmental, organizational, and technological circumstances. We find that our cross-sectional model explains substantial variance in IT budgets, which indicates that contingent environmental, organizational, and technological factors affect managers’ budget decisions. We then examine the extent to which these IT budget levels are related to future firm performance, measured using both broad financial accounting measures, such as operating profit margins and return on assets, and market returns. We find that IT budget levels are positively associated with subsequent firm performance and shareholder returns. We further suggest that IT’s aggregate effect on performance is a weighted average of two very different components: (1) context-driven IT budget levels, which reflect the effects of environmental, organization, and technological factors and the IT budgets resulting from them, and (2) idiosyncratic IT budget levels, which reflect the effect of any marginal firm-specific IT budget expenditures after controlling for these contextual factors. Both components are positively associated with performance, indicating that the specified contextual factors provide an incomplete explanation of firms’ value-relevant IT expenditures. The current study contributes to the accounting information systems and management accounting literatures by assessing the causes and consequences of IT budgets.

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References

1985Competitive Advantage: Creating and Sustaining Superior Performance 2011External Control of Organizations: Resource Dependence Perspective 1996Multifactor Explanations of Asset Pricing Anomalies 1998Competitive advantage: creating and sustaining superior performance 2000A Resource-Based Perspective on Information Technology Capability and Firm Performance: An Empirical Investigation1 1968Organization and Environment: Managing Differentiation and Integration.2004Review: Information Technology and Organizational Performance: An Integrative Model of IT Business Value1 2000The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment

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2012Organization Design: The Epistemic Interdependence Perspective 2019The Impact of Audit Committee Information Technology Expertise on the Reliability and Timeliness of Financial Reporting 2021How Firms Make Information Technology Investment Decisions: Toward a Behavioral Agency Theory 2017Operational IT Failures, IT Value Destruction, and Board-Level IT Governance Changes1 2012

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