Information technology investments and firm value

• Published in: Information & management 2005-10, Vol.42 (7), p.989-1008
• Main Authors: Dehning, Bruce, Richardson, Vernon J., Stratopoulos, Theophanis
• Format: Article
• Language: English
• Subjects: Capital expenditures; Competitive advantage; Event studies; Exact sciences and technology; Information and communication sciences; Information processing and retrieval; Information science. Documentation; Information technology; IT investments; Market value; Miscellaneous; Residual income; Sciences and techniques of general use; Strategic planning; Studies
• ISSN: 0378-7206; 1872-7530
• DOI: 10.1016/j.im.2004.11.003

Our objective in this paper is to develop a firm value model to assist IT managers and researchers in understanding the multiple effects that IT investments have on firm value. This firm value approach adds to the process-oriented approach through simultaneous evaluation of all of the factors that affect firm value. It is crucial for IT professionals to recognize the complex and diverse implications of IT investments on firm value. The implications of the firm value approach include forcing IT managers to think in terms of both industry and company-specific effects of IT investments, to consider both the magnitude and duration of competitive advantage due to IT investments, and the implications of the effect that IT investments have on risk and its relation to firm value. We demonstrate an application of the firm value framework by evaluating a major stream of research in MIS—event studies of IT investment announcements. Appendices to this paper can be found at http://www.itandfirmvalue.com.