Determinants and Consequences of Firm Information Technology Budgets

Posted: 18 Jan 2008

See all articles by Kevin Kobelsky

Kevin Kobelsky

University of Michigan - Dearborn

Vernon J. Richardson

University of Arkansas at Fayetteville

Rod Smith

Cal State University Long Beach

Robert W. Zmud

affiliation not provided to SSRN

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.

Keywords: IT budgets, firm performance, resource allocation

JEL Classification: M40, M41, M46, G31, L86, D73

Suggested Citation

Kobelsky, Kevin and Richardson, Vernon J. and Smith, Rodney E. and Zmud, Robert W., Determinants and Consequences of Firm Information Technology Budgets. Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1085308

Kevin Kobelsky

University of Michigan - Dearborn ( email )

College of Business
19000 Hubbard Drive, Room 171 FCS
Dearborn, MI 48126
United States
313-583-6490 (Phone)

HOME PAGE: http://https://umdearborn.edu/cob/kevin-kobelsky/

Vernon J. Richardson (Contact Author)

University of Arkansas at Fayetteville ( email )

401 WCOB
Fayetteville, AR 72701
United States

Rodney E. Smith

Cal State University Long Beach ( email )

Long Beach, CA 90840
United States
562-985-5421 (Phone)

Robert W. Zmud

affiliation not provided to SSRN ( email )

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