Abstract

There is a considerable body of literature about the business value of information technology. Although there is empirical evidence about the positive impact of large-scale information technology on firm performance, the number and variety of quantitative methods used to measure this impact is considerable. Besides this diversity in the methods, almost none of them have both strong theoretical basis and strong econometric robustness. A method to measure accounting-based abnormal returns of large-scale information technology is proposed. Unlike existing accounting and market measures, this measure considers industry tendencies over time and the magnitude of the measure can be used as a proxy of the business value of the IT initiative. The method is implemented using a sample of enterprise systems implementations in public companies. This is a unique methodology based on recent accounting research, which propose an econometric model to capture annual abnormal returns of large-scale information technology initiatives. The method is validated with theoretical arguments and empirical results. Empirical results suggest that the measurement of the IT payoff is reliable, valid and robust.

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