Information Technology Investments, Asset Similarities, and Productivity
36 Pages Posted: 12 Jul 2018 Last revised: 19 Aug 2019
Date Written: August 8, 2019
Investments in information technology (IT) by a business entity generally lead to benefits for other entities, creating spillovers. While the spillovers have been examined in the inter-firm and industry contexts, it is unclear whether information technology (IT) investments lead to spillovers for a business unit (BU), particularly due to greater IT investments across other BU’s within the multi-business firm (MBF). In the inter-firm context, geographical proximity and business relatedness are crucial to harnessing spillovers. Because business units (BUs) are often spread geographically and operate in different industries, intra-firm spillovers may be less prominent within MBFs. We examine whether IT infrastructure centralization may be an effective governance mechanism for harnessing intra-firm spillovers. We, thus, theorize and unravel how IT governance centralization interacts with IT asset similarity (ITAS) across BUs to engender intra-firm spillovers. To empirically test our hypotheses, we utilize longitudinal observations across 9,885 unique units nested in 1,115 unique firms from 2005 to 2013. The results indicate that BUs with relatively higher ITAS and higher levels of IT centralization realize greater intra-firm spillovers. Specifically, our elasticity estimates show that a 1 percent increase in the size of intra-firm spillover pools leads to a 0.011 percent increase in value. We also find that intra-firm spillover elasticities are almost twice as large as inter-firm spillover elasticities, and these estimates are robust across a broad set of alternative specifications and measures. Additionally, the analysis in a restrictive sample focusing on newly merged/acquired BUs shows that deviation from the expected levels of ITC, i.e., ITC-ITAS misalignment, is detrimental for the BU’s productivity.
Keywords: Intra-firm IT spillover, IT assets similarity, productivity, IT centralization
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