Longitudinal and externality considerations in evaluating the performance impact of information technology

This dissertation examines the impact of information technology (IT) on firm performance in the professional services industry for which information utilization is the core competence. Its contribution to the literature on the business value of IT includes consideration of endogenous lags and evaluation of potential externalities of IT investment. The study is conducted with archival and interview data collected from a leading international public accounting firm. While the research is mainly analyzed using economic methods, detailed qualitative information is also presented to enrich the insights obtained from the quantitative analysis.; From the longitudinal perspective, the research explores how the revenue and operating costs of the accounting firm are affected by its IT expenditure. A special estimation model is developed to reflect the central role of professional staff in service production and the staggered relation between output and revenue collection. Analyzing time-series data for multiple offices, a pattern of lagged impacts of IT expenditure is identified. Empirical evidence supports the presence of delayed payoffs from IT, indicating a decline in revenue generation following IT investment before performance improvement materializes.; The study next investigates IT impacts from the standpoint of externalities whereby a firm's production cost is affected by the IT decisions of its business partners. Using cross-sectional data on audit engagements for the 100 largest clients of an office of the public accounting firm, this study evaluates the impact of the clients' IT choices on the audit costs, audit staff allocations and audit prices. The results indicate that high intensity and complexity of the client's information systems increase the total audit costs while good documentation and security of them decrease the costs Such changes in cost are eventually passed on to the client via changes in audit price.