The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective

ABSTRACT

The primary objective of this study is to examine the influence of information technology (IT) on organizational coordination costs using the theoretical lens of transaction cost economics. In doing so, the study addresses the following research questions: Does IT matter? How and why does IT matter to firms? How does coordination cost mediate the relationship between IT spending and firm productivity, and how does it influence IT spending and firm size when considering the information product industries (IPI) and the physical product industries (PPI)? To address these research questions, we use IT spending, coordination costs, firm size, and firm productivity with firm-level data, using Information Week and the Compustat data set in the United States, from 2011 to 2013. A SmartPLS path analysis was used to test the research hypotheses. The results show that use of the firm’s IT spending decreases coordination costs. Likewise, the results show that IT spending also decreases firm size. On the other hand, the results also show that IT spending does not significantly improve a firm’s productivity. Furthermore, the results indicate strong evidence that coordination costs act as a mediator between IT spending and firm size in IPI firms. Coordination costs also mediate the relationship between IT spending and firm productivity in IPI firms. Overall, this study sheds light on the importance of the impact of IT on reducing coordination costs as well as on firm size and firm productivity. This must be especially considered in regard to interorganizational coordination.

KEY WORDS AND PHRASES:

• Coordination costs
• firm productivity
• firm size
• interorganizational coordination
• IT spending
• transaction cost theory

Additional information

Notes on contributors

Jengchung V. Chen

JENGCHUNG V. CHEN ([email protected]) is a professor and director of the Institute of International Management at the College of Management, National Chen Kung University, Taiwan. He earned his Ph.D. in communication and information sciences from the University of Hawaii. He has published over sixty papers in refereed journals, including Information and Management, Decision Support Systems, European Journal of Information Systems, and Computers in Human Behavior.

Bo-chiuan Su

BO-CHIUAN SU ([email protected]; corresponding author) is an associate professor in the Department of Information Management, School of Management, National Dong Hwa University, Taiwan. He earned his Ph.D. in business administration with a specialization in information management from the University of Connecticut. His research has appeared in International Journal of Electronic Commerce, Decision Support Systems, International Journal of Mobile Communications, and others.

Timothy M. Hiele

TIMOTHY M. HIELE ([email protected]) is a Ph.D. student at the Institute of International Management, National Cheng Kung University, Taiwan. His research spans the domain of management information systems research. His work has appeared in the Journal of Quality Assurance in Hospitality and Tourism.