Information Technology, Organizational Learning, and the Market Value of the Firm

By Hunter, Starling David | JITTA : Journal of Information Technology Theory and Application, January 1, 2003 | Go to article overview

Information Technology, Organizational Learning, and the Market Value of the Firm


Hunter, Starling David, JITTA : Journal of Information Technology Theory and Application


ABSTRACT

This paper compares the mean and variance of cumulative abnormal returns following announcements of two types of information technology (IT) investments: those which entail the "exploitation " of firm's current capabilities vs. those which involve the exploration of new capabilities. The paper addresses two understudied questions in research on the contribution of IT to firm performance: the contingent nature of those contributions and the impact on risk (or variance), as well as on return (mean). To examine these questions I first performed a standard event study analysis on a sample of 150 announcements of IT investments made by 59 publicly-traded retailers between the years 1990-1997. I performed two types of multivariate regression analysis on the event returns: ordinary least squares (to assess the impact of the two types of investments on the mean level of returns) and multiplicative heteroscedastic regression (to determine the impact on the variance of the returns). The results indicate that, as expected, IT investments "exploitative" IT investments have the same mean as, yet lower variance than, abnormal returns associated with "exploratory" IT investments. Somewhat unexpectedly, I found that both types of IT investments had a significantly negative impact on the market value of the firm. Taken together, these findings suggest that the characteristics of IT investments themselves, as well as the industry and strategic context within which they were made, are important determinants of the market value of the firm. As such, the results of this study should be of interest to researchers interested in the contribution of IT to firm performance and to MIS professionals both in the retailing sector, in particular, and other service sectors, more generally.

INTRODUCTION

Recent empirical work has identified several organizational, strategic, and environmental factors that influence whether, how, and to what extent information technology (IT) investments impact firm performance. These include, but are not limited to: "IT capability", i.e. the firm-specific, managerial resources and capabilities required to manage IT investments (Bharadwaj, Sambamurthy, and Zmud 2001; Bharadwaj 2000); "intangible assets", i.e. the investments in "training, and organizational transformation" that accompany IT investments (Brynjolfsson, Hitt, and Yang 2002); characteristics of the organizational tasks, processes, and functions to which IT is applied (Barua, Kriebel, and Mukhopadhyay 1995); complementary organizational designs and human resource management practices (Brynjolfsson and Hitt 2000); the management goals or strategic intent for IT investments, e.g. whether or not they were intended to achieve "competitive advantage" (Weill 1990); organizational form (Subramani and Waiden 2001) and size (Im, Dow, and Grover 2001); industry characteristics such as the level of "information intensity" (Dos Santos, Peffers, and Mauer 1993) and the degree of "IT-driven transformation" (Chatterjee, Richardson, Zmud 2001); as well as, characteristics of the investments themselves, e.g. their "innovativeness" (Dos Santos, Peffers, and Mauer 1993).

One contingency which has yet to be examined is that of organizational learning, i.e. how organizations learn from experience (March, Sproull, and Tamuz 1991). March (1991, 1995) has propounded a theory of organizational learning which describes two distinct, yet complementary, ways in which organizations learn and, thereby, change their performance. He terms them "exploration" and "exploitation" (March 1991, p. 71). Although the theory contains many testable propositions about the causal relationship between learning and performance, it has yet to be applied to the study of the consequences of information technology on firm performance. The theory has, however, recently been used in the strategic management literature to explain the impact of organizational learning on financial performance (Sorenson and Sorensen 2001; Sorensen 2002; Rothaermel 2001) and technological evolution (Rosenkopf and Nerkar 2001). …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Information Technology, Organizational Learning, and the Market Value of the Firm
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.