Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

6-1999

Publication Source

Information Systems Research

Volume

10

Issue

2

Start Page

134

Last Page

149

DOI

10.1287/isre.10.2.134

Abstract

Previous literature has suggested that information technology (IT) can affect firm bound- aries by changing the costs of coordinating economic activity within and between firms (internal and external coordination). This paper examines the empirical relationship between IT and firm structure and evaluates whether this structure is consistent with prior arguments about IT and coordination. We formulate an empirical model to relate the use of information technology capital to vertical integration and diversification. This model is tested using an 8- year panel data set of information technology capital stock, firm structure, and relevant control variables for 549 large firms.

Overall, increased use of IT is found to be associated with substantial decreases in vertical integration and weak increases in diversification. In addition, firms that are less vertically integrated and more diversified have a higher demand for IT capital. While we cannot rule out all alternative explanations for these results, they are consistent with previous theoretical arguments that both internal and external coordination costs are reduced by IT.

Keywords

Firm Boundaries, Transaction Costs, Markets, Hierarchies, Information Technology, Computers, Di- versification, Vertical Integration

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Date Posted: 27 November 2017

This document has been peer reviewed.