Evaluating cross-organizational impacts of information technology – an empirical analysis

Abstract

This paper documents information technology (IT) impacts that extend across organizational boundaries based on the economic theory. It evaluates how a firm's production cost is affected by the IT decisions of its business partners, over which it has no direct control. Using cross-sectional data on 100 audit engagements for the 100 largest continuing clients of a leading international public accounting firm's main office, it empirically evaluates the impact of the clients’ IT choices on their supplier's (the public accounting firm's) production costs, professional allocations and product prices. The results indicate, other things being equal, that the higher intensity or complexity a client's IT exhibits, the more effort public accounting professionals need to exert, thus, the higher the production cost incurred by the public accounting firm. In contrast, the better documentation or security a client's IT furnishes, the lower the cost the public accounting firm sustains. Furthermore, such differences in production cost are eventually passed on to the client via differences in product price.

Keywords:

• cross-organizational impacts
• externalities
• information technology value
• translog cost function
• seemingly unrelated regression
• public accounting

Additional information

Notes on contributors

Rajiv D Banker

About the authors

Rajiv D. Banker is the Merves Chair and Director of the Center for Accounting and Information Technology at the Fox School of Business, Temple University. Dr. Banker is internationally recognized as a leader in interdisciplinary research in management. He has received numerous awards for his research and published more than 150 articles in prestigious research journals.

Hsihui Chang

Hsihui Chang is the KPMG Endowed Chair in the LeBow College of Business at Drexel University. He received his Ph.D. from University of Minnesota. Dr. Chang has published more than 30 articles in various academic journals. His research interests include strategic cost analysis, performance evaluation and information management.

Yi-Ching Kao

Yi-Ching Kao is Visiting Assistant Professor in the Business School at University of Colorado Denver. She received her Ph.D. from the University of Texas at Dallas and won the Outstanding Dissertation Award by American Accounting Association Information Systems Section. Her research interests include IT business value and audit production.