The primary objective of this study is to empirically examine the impact of IT on firm size - a principal determinant of organizational structure. Our study is based on microeconomics theory and transaction costs theory. In microeconomics theory IT is viewed as a factor of production that can be freely substituted for capital and labor. As the cost of IT falls, it is substituted for labor that historically has a rising cost. Hence, IT should result in a decline in the number of middle managers and clerical workers (i.e. firm size) as IT substitutes for their labor (labor substitution effect).
Im, Kun, "Information Technology, Coordination Costs, and Firm Size" (1998). AMCIS 1998 Proceedings. 413.