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Determinants and Consequences of Information Technology Budgets
Kevin Kobelsky, Baylor University
Vernon J. Richardson, University of Arkansas
Rodney Smith, California State University Long Beach
Robert Zmud, University of Oklahoma
ABSTRACT. For most firms, the information technology (IT) budget represents a major element in the overall firm budget, and IT budget decisions often have significant operational and strategic impacts on the business processes in the firm’s value chain. In this paper we use a large unique data set to examine the extent to which IT budgets are constrained by environmental, organizational, and technological circumstances. We find that our cross-sectional model explains substantial variance in IT budgets, which indicates that contingent environmental, organizational, and technological factors constrain managers’ budget decisions. We then examine the extent to which IT budget levels are related to future firm performance, measured using both broad financial accounting measures, such as operating profit margins and return on assets, and market returns. We find that IT budget levels are positively associated with subsequent firm performance and shareholder returns.
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