Evaluating the impact of Information Technology (IT) spending on firm performance has long been an issue for both managers and researchers. To date most research has focuses on the returns that IT investments can provide to firms and the results for many years showed no impact of IT investment. More recent studies have shown an abnormally positive influence. Given the large amount of IT spending and mixed results an open question is what is the impact of IT investment on firm performance? Arguments to date have posed that the reason that IT spending did not produce productivity was due to lag effects, yet has ignored why the proposed lags were decades long. Significant research outside the information systems community has shown a tradeoff between returns and risk, yet most studies to date have used incomplete measures of returns that have failed to account for risk. Bounded rationality is used in this paper to show how IT investments could reduce variability. Borrowing from financial economics I will show that ceteris paribus risk reduction provides a plausible explanation for why IT investment continued after decades of little observable impact and how this risk reduction can explain a significant portion of the abnormal returns we now see from IT investment.
Wimble, Matthew, "IT Investment, Risk, and Firm Performance" (2006). MWAIS 2006 Proceedings. 7.