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The Role of Information Technology in Risk/Return Relations of Firms

Journal of the Association for Information Systems, Vol. 5, No. 11-12, pp. 421-447, December 2004

28 Pages Posted: 27 Feb 2005  

Hüseyin Tanriverdi

University of Texas at Austin - Red McCombs School of Business

Timothy W. Ruefli

University of Texas at Austin - Red McCombs School of Business

Abstract

Information Technology (IT) investments are the largest capital budgeting item in most U.S. firms. Thus, there is significant scholarly interest in understanding the relationship between IT investments and firm performance. However, findings to date remain mixed: while some studies find a positive relationship between IT investments and firm performance, others fail to find any significant relationships at all. One possible reason for this may be that most studies conceptualize and measure firm performance in terms of returns - but ignore risk. Although risk is also an important aspect of firm performance, and there are tradeoffs between risks and returns, most IS studies have not included risk in examining the relationship between IT investments and firm performance. Focusing only on the return implications of IT ignores risk/return tradeoffs and the possibility that IT can influence the risk/return positions of firms. In this study, we build on and extend the economic theory of complementarities to explain how and why IT influences risk/return relations of firms. We discuss how the incorporation of risk into the analysis of performance effects of IT provides new insights for theory and practice.

Keywords: Information Technology, Corporate Risk, Corporate Return, Risk/return Tradeoff,

JEL Classification: M1, L86, O3

Suggested Citation

Tanriverdi, Hüseyin and Ruefli, Timothy W., The Role of Information Technology in Risk/Return Relations of Firms. Journal of the Association for Information Systems, Vol. 5, No. 11-12, pp. 421-447, December 2004. Available at SSRN: https://ssrn.com/abstract=671962

Huseyin Tanriverdi (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Timothy W. Ruefli

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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