Week4_How to work with your advisor?
Discussion topic: How to work with your advisor?
Pang: There are two important principles:
- Your advisor is not your boss.
- Your advisor is not doing your research for you.
Let’s talk about what the first principle means. How is an advisor different from a boss?
Student1: A boss and an advisor are different in that an advisor gives guideline for what you are doing, while a boss gives you what you should undertake and follow.
Pang: Right. In your research, you are the boss, not your advisor is. You don’t need to do everything that your advisor tells you to do. If you only follow your advisor’s instructions, you are no more than his/her research assistant. You should be the boss for your own project, dissertation, or job market paper.
I understand that to Asians, what a teacher says is always God-given truth. You must change such a mentality. Sometimes, you have to have a courage to disagree with your advisor and should be able to convince him/her why your way is better. If you can’t convince your advisor, how would you convince your editor or reviewers?
Pang: What do you think with the second principle? – Your adviser is not going to do research for you.
Student2: You should be an independent researcher.
Student3: From my own experience, I had to recheck and have a second look at a paper before submitting it, because I am responsible for it.
Student4: We should be the one who pushes your project forward.
Pang: Yes, you should be the one who manages your research. The bottom line is, your advisor is not going to solve your problems. His/her role is helping you do quality research and complete it, not offering solutions to you every time you hit a wall. “My advisor does not let me graduate..” does not really make sense from this perspective.
Student5: I think the relationship between a student and an advisor varies in disciplines.
Pang: True, but in a business school, as we’ve been discussing, you are expected to become an independent researcher. Remember this – Don’t blame your advisor when your research goes south. Your advisor is not the person who solves every problem of yours. It is your job.
You are the one who knows the most about your project. An advisor often does not know everything about your work. At a conference presentation, I’ve seen a professor talking to the audience that “I don’t know why my student chose this method..” He may not be supposed to say it, but he was likely telling the truth. Since you’re the boss in your research, you make the decisions, and therefore, you’re responsible for it.
Pang: I also want to talk a little about who should be your advisor. It might be a good idea to have two advisors – a senior professor and a junior/assistant professor. There is a study in a science discipline that the most cited papers are ones with a three co-author combination – a doctoral student (first), a junior faculty (second), and a senior professor (third). The doctoral student is the one who came with up the idea, did the bulk of the analyses, and wrote most of the paper. What are the roles of the other two co-authors, then?
Student1: The senior advisor provides a big picture, and the junior advisor provides detailed skills.
Pang: That’s right. The junior advisor can provide hands-on and detailed skills and tacit/intimate knowledge on how to make a progress in research, how to get it done. The senior professor, on the other hand, can provide a big picture: What is interesting to reviewers, what is not, how to frame/sell the paper, and what contribution the paper makes, and etc. This is a complementary role between the senior and the junior faculty members.
Week 05 – System Development – paper assignment
| Paper | Student | Background |
| Krishnan et al. (2000) | Vicky | Capability Maturity Model (Krishnan and Keller 1999) |
| Bank and Slaughter (2000) | Xinyu | Function points |
| Grewal et al. (2006) | Yiran | Social capital |
| Grewal et al. (2006) | Yae Eun | Measurement of centrality (degree, between, eigenvalue) |
| Subramanyam et al. (2012) | Aaron | 3SLS, Seemingly unrelated regression |
| Subramanyam et al. (2012) | Xue | Measurement of component granularity (Messerschmitt 2007) |
| Ramasubbu and Kemerer (2015) | Ada | Competing risks analysis (Fine and Gray 1999) |
| Ramasubbu and Kemerer (2015) | JK | Henderson and Clark (1990) |
Literature Review – due by Friday, March 4, 11:59 PM
The literature review assignment is due by Friday, March 4 at 11:59 PM EST. Submit your file by email to minspang@temple.edu.
- Topics should be from the ones listed in the course schedule or closely related to them.
- The literature review should be no more than five-page long in double-space, 11-point text, one inch-margin in all four sides.
Ceccagnoli 2012—Yiran Week 4
This paper investigated whether participation in an ecosystem partnership will improve the business performance in the context of the enterprise software industry (ISV). The key research questions of this study are (1) Is participation in a platform ecosystem, on average, associated with an increase in performance? (2) How is this improvement in performance affected by an ISV’s ownership of IPRs and specialized downstream capabilities? Two critical performance measures for ISVs were used as DV in this paper: sales and the likelihood of obtaining an initial public offering (IPO). They used a longitudinal data set of 1,210 small ISVs over the period of 1996 – 2004, with information on both ISVs’ decisions to join SAP’s platform ecosystem and information on their business performance. To operatize the participation in platform ecosystem (IV), they also collect partnership formation events through press releases. The stock of software trademarks registered in the United States is used as the measurement of another IV. The research framework is shown in Figure 1
.
Except for H4b, all the hypotheses are supported, showing that ISVs can achieve significant benefits through participation in a platform ecosystem. Joining a major platform owner’s platform ecosystem is associated with an increase in sales and a greater likelihood of issuing an initial public offering (IPO). Furthermore, these impacts are greater when ISVs have greater intellectual property rights or stronger downstream capabilities. The theoretical contribution lie in implying strong IPRs directly mitigate the negative impact of technology commercialization by ISVs. by affecting the likelihood of platform owner entry. In other words, IPRs appear to favor both value appropriation and value cocreation in the enterprise software industry
Week4_Tafti et al. 2013_Aaron
Extant IS studies have focused on the effects of IT in reducing transaction and coordination costs in inter-organization relationships, there has been little understanding regarding the role of flexible IT architecture as an enabler of interfirm collaboration.
Ali Tafti et al. (2013) fill this academic vacuum by investigating the effects of information technology architecture flexibility on strategic alliance formation and firm value. Specifically, they first examine the effect of three dimensions of IT architecture flexibility (open communication standard, cross-functional transparency, and modularity) on formation of three types of alliances (arm’s-length, collaborative, and joint-venture alliances, respectively.) Second, they study how capability in IT flexibility moderate the value derived from alliances.
To establish the relationship between IT architecture flexibility, strategic alliances and firm value, they utilize a data set from 169 firms that are publicly listed in the US and that span multiple industries. Through panel random-effects models along with several techniques to address potential effects of endogeneity and simultaneity, they found that adoption of open communication standards is associated with the formation of arm’s-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. They also found that the value of alliances is enhanced by overall IT architecture flexibility, implying that all three dimensions of flexibility are important in the value derived from arm’s-length, collaborative and joint-venture alliances.
This study suggests a need for greater consideration of the role of flexibility in IT-driven business process to understand the underpinnings of IT business value in inter-organizational context.
Week4_Tanriverdi & Uysal (2011)_Yaeeun Kim
This paper considered the cross-business information technology integration (CBITI) capability of an acquirer as a potential value-creation mechanism in M&A. This study contributes to the M&A streams within the finance and strategy literature by explaining how and why the CIBTI capability of an acquirer following an acquisition.
In examining the short-run abnormal stock returns, capital markets are indifferent to whether the value will be created out of potential synergies in similar resources of related targets or complementary resources of unrelated targets, but it showed significant result when CBITI capabilities. Event study method was used to measure forward-looking expectations of the capital markets about the value-creation or destruction effects of CBITI in a new M&A. This method assumes that capital markets are efficient (efficient market hypothesis), incorporating into the stock price of the acquirer all relevant information about the acquirer. By setting an event day as 0, the event window is set as five-day [-2, 2], and examining the difference of actual returns and expected returns that when M&A was not announced.
In examining long-run abnormal operating performance (AOP), industry relatedness of a target was significant in moderation effect. Interestingly, the complexity of structure does not deter for superior CBITI capabilities integrate the complementary resources of unrelated targets acquired from different industries. To compute the long-run AOP of an acquirer after a new acquisition, an event study method was used again. This method is designed to capture changes in accounting-based measures of a firm’s operating performance relative to a benchmark, such as M&A. Industry benchmark minimizes problems such as differences in the prevent characteristics of firms leading to operating performance differences before the impact of the M&A event under consideration.
Week4_Tanriverdi and Uysal (2011)_Xinyu
Tanriverdi and Uysal (2011) theoretically develop and empirically validate the idea that the cross-business information technology integration (CBITI) capability of an acquirer is an important value-creation mechanism in mergers and acquisitions.
The paper proposes that CBITI capability create acquirer value through 1) IT cost savings, 2) minimization of potential disruption to business operation, 3) realization of business synergy, and 4) reduction of regulatory costs. Based on prior literature, the CBITI capability is measured by five dimensions of the IT integration of acquirer and target firms, and the data is collected from a survey published in Tanriverdi (2006). The value created in mergers and acquisitions is divided into short-run market-based value and long-run accounting-based value, which are observed through event study methods on capital market and firms’ operating performance, respectively. The value creation is proposed to be moderated by the industry relatedness between acquirer and target firms, which is also measured by the survey.
The findings indicate that, in the short run, acquirers with high levels of CBITI capability receive positive and significant abnormal returns on the capital markets. In the long run, acquirers with high levels of CBITI capability obtain significantly higher abnormal operating performance. However, the moderating effect of industry relatedness is only found in the long run scenario.
It is the first paper that link the construct of CBITI with mergers and acquisition performance.
Week 4_Chellappa et al. (2010)_Jung Kwan Kim
The research of Chellappa, Sambamurthy, and Saraf (2010) is motivated by conflicting arguments in strategy literature to respond the question: is it beneficial to participate in a crowded market or not? By examining the enterprise systems software (ESS) industry, the authors argue that the detrimental effect of being in a crowded market can be counteracted by the virtuous effect of demand externality.
More specifically, the authors suggest that “the performance of an ESS firm is positively related to its degree of multimarket contact with the other ESS firms” (Hypothesis 1). This is mainly because ESS firms in a market may enjoy the mutual forbearance to secure higher market performance if they are more familiar with and more fearful to each other based on the possibility of retaliation. The Hypothesis 2 is also supported, though weakly, saying that “the performance of an ESS firm is positively related to its degree of participation in crowded markets, or the extent of market domain overlap.” The customers perceive the presence of many ESS firms in a market as a positive signal about the importance and the legitimacy of the component in the market. Also, the crowded market attracts more knowledge brokers (such as consultants), reinforcing the legitimacy and the viability. Thus, the participation in a crowded market may bring a positive performance, though the outcome can be somewhat mitigated by the intensity of competition. Finally, the Hypothesis 3 contends that “the positive effects of ESS firms’ participation in crowded markets are increased by the level of multimarket contact with other ESS firms.” This hypothesis is also supported in that an ESS firm in a crowded market with high multimarket contact understands rivals better and in that such ESS firm has more ways to retaliate any rivalrous activities of other similar firms.
In conclusion, ESS firms may benefit from competing in many crowded markets, a counterintuitive implication to traditional strategy scholars.
Week4_Chellappa et al (2010)_Xue Guo
Competing in Crowded Markets: Multimarket contact and the Nature of Competition in the Enterprise Systems software industry
This paper examines the performance consequences of competition among enterprise systems software (ESS) providers. The authors provide reasons for the appearance of ESS firms in the crowded markets and shed light on ESS firms’ strategies in competitive markets.
The paper mainly discussed the effects of multimarket contact and participation in crowded market on ESS firms’ performance. Based on the previous literature about the mutual forbearance and crowded market structure, the authors proposes that multimarket contact can foster mutual forbearance, which is positively related to firm performance, and the participation in crowded market also positively associated with firm performance by demand externalities.
The authors empirically test the hypothesis by a merging dataset across three time periods. It builds a random effect model, which contains the dependent variable—firms’ performance and the main independent variables—multimarket contact, participation and the interaction term of these two. Also, the authors incorporate a temporal lag between Dependent Variable and the other variables to avoid causal ambiguity. The results showed that the coefficient of multimarket contact and the interaction term is positive and significant. The coefficient of participation is weakly significant. These results suggest that firms do not benefit by offering a large number of software components. However, firms stand to benefit if they strategically choose specific market. In addition, firms gain performance benefits by competing in the crowded market but it may be diluted by increased market overlap and competitive rivalry.
This paper contributes to the literature by further examining performance consequences in crowded market of ESS firms and studying the joint effects of multimarket contact and market overlap on ESS firm performance. At the same time, it provides meaningful implications for firm strategy and management.
Week4_Chi et al. (2010)_Vicky Xu
Information Technology, Network Structure, and Competitive Action
Over the last 20 years, firms have increasingly used IT to create and manage their interfirm networks. And prior studies tried to explore the relationships among the structural properties of interorganizational networks IT use, and competitive behavior. However, more researches on the complex interplay between different types of network structure and IT and their effects on competitive behavior of firms are needed. Chi et al. (2010) focus on the sparse-versus-dense network structure of interorganizational networks and aim to examine how two different types (Sparse and dense) of network structure interact with IT to influence firm competitive action which has examined three recognizable patterns as: action volume, action complexity, and action heterogeneity.
Chi et al. (2010) present the theoretical model as following (Figure 1, p546):
Chi et al. (2010) collected a sample of firms from the global automobile industry (SIC 3711) that sell autos in the U.S. market to test the hypotheses in the study. The firm-level panel data from 1988 to 2003 includes: competitive action data, alliance network data, and IT-enabled capability data. The random-effects model was performed to analyze the data.
Chi et al. (2010) find that network structure rich in structural holes has a positive direct effect on firms’ ability to introduce a greater number and a wider range of competitive actions. And firms benefit from dense network structure only when they develop a strong IT-enabled capability. In addition, firms can use IT to complement both types of network structure to increase all three behavioral drivers for competitive actions.
The contributions are: 1). Presenting an attempt to systematically explore the significant interplay between interfirm network and IT. 2). Contributing to research on IT valuation by demonstrating the moderating role of IT-enabled capability on the effects of network structure on firm action. 3). Advancing competitive dynamics research by showing how sparse-verse-dense network structure differentially affects competitive behavior of firms. 4). Extending the awareness-motivation-capability (AMC) framework by focusing on attributes and patterns of competitive action repertoire. 5). Important practical implications which suggest that managers need to consider the network structure in which their firms are embedded when designing their technology infrastructure.
Information Technology, Network Structure, and Competitive Action—Ada
Information Technology, Network Structure, and Competitive Action
Motivation:
Recent research suggests that the structure of alliance networks is an important determinant of firms’ potential to access valuable knowledge and resources which, in turn, enable them to outcompete rivals. But the conclusions are competing. Some researchers emphasize the advantages of dense network structure in which all partners of a focal firm closely collaborate with one another. Alternatively, other researchers argue that a sparse network structure rich in structural holes is beneficial to the firms.
Research Question:
We examine how these two contrasting types (dense and sparse) of network structure affect competitive behavior of firms and what is the role of IT as an important moderator of the relationship between each type of network structure and competitive firm behavior.
Data and Method:
- Firm-level panel data;
- Random effect;
Main Findings:
- Firms can benefit from both types of network structure. First, structure holes have a positive direct effect on automakers’ ability to compete aggressively by undertaking a greater volume and a broader range of competitive actions. Second, we have also found a positive effect of network density on action volume and action complexity when automakers have a high level of IT-enabled capability.
- IT-enabled capability has a distinctive effect on each type of network structure which, in turn, has significant implications on firms’ competitive behavior. In particular, IT-enabled capability plays two roles: complementary and substitutive. On one hand, we have found that IT-enabled capability enhances (complements) the effects of network density on competitive actions. On the other hand, IT-enabled capability compensates for (or substitutes) the effects of structural holes on competitive action.
Background Reading: (Shaping Agility Through Digital Options: Reconceptualizing The Role Of Information Technology In Contemporary Firms)
By drawing upon recent thinking in the strategy entrepreneurship and IT management literatures, this paper clarified how information technology investments and capabilities influence firm performance by shaping three significant organizational capabilities (agility, digital options and entrepreneurial alertness) and strategic processes (capability building entrepreneurial action and co-evolutionary adaptation).
Week 04 – Competition and Partnership – paper assignment
| Paper | Student | Background |
| Chi et al. (2010) | Vicky | Network structure (structural holes, network density) |
| Chi et al. (2010) | Ada | Sambamurthy, Bharadwaj, and Grover (2003) |
| Chellappa et al. (2010) | Xue | Two-sided markets |
| Chellappa et al. (2010) | JK | Baum and Korn (1996) – measurement of multimarket contact and crowded market |
| Tanriverdi and Uysal (2011) | Yae Eun | Efficient market hypothesis, Event study methodology |
| Tanriverdi and Uysal (2011) | Xinyu | Tanriverdi (2006) |
| Ceccagnoli et al. (2012) | Yiran | Difference in patent, copyright, and trademark |
| Tafti et al. (2013) | Aaron | Modularity of IT architecture, Service-oriented architecture |
Background information “The Impact of Information Systems on Organizations and Markets”
This article examines the impact of information technology on two attributes of firms–firm size and the allocation of decision rights among the various actors in a firm.
The conclusion is 1) a firm may use information systems to decentralize some decision rights and to centralize others, exploiting the merits of both systems and leading to a hybrid structure. 2) when IT plays a significant role in reducing internal coordination costs, a firm may find it advantageous to grow horizontally and vertically. A firm’s use of IT can result in an increase or decrease in either the horizontal or vertical dimension of firm size.
Week 3 Ray et al Yiran
Extant data contradict previous research that the level of vertical integration (VI) has increased rather than decrease with the increasing use of information technology (IT). To address this gap, this paper studies the moderating impact of two measures of competitive environment, demand uncertainty, and industry concentration, on the relationship between IT and VI.
The authors adopt firm level IT spending data from 1995 to 1997 drawn from InformationWeek 500 that had been used in prior research. Matching them with data from other sources, a 2-euation model is used for this paper to address endogenous issue between VI and IT. The results of their analysis show that when demand uncertainty is high or industry concentration is low, IT is associated with a decrease in VI. I. The reason is that IT provides the agility to coordinate with different external partners and specialists. While when in concentrated and in more predictable demand environments, IT may be associated with an increase in VI as firms use IT to coordinate more activities inside the firm to increase revenue, and capture value-add and margin.
This article contribute to the literature by showing the difference in the use of IT across different competitive environments. The implication of this research is that the level of VI may be chosen strategically, given the nature of the competitive environment, which also entails the need for further analysis. Also, since coordination efficiency and effectiveness is possible to affect production costs, future research must explore in greater detail how technology driven coordination and production activities interact, and the implications of this interaction for the level of VI.
Input-output tables
The I-O accounts (tables) show how industries interact; specifically, they show how industries provide input to, and use output from, each other to produce Gross Domestic Product (GDP). These accounts provide detailed information on the flows of the goods and services that comprise the production process of industries. The I-O accounts are presented in a set of tables: Use, Make, Direct Requirements and Total Requirements. The Use table shows the inputs to industry production and the commodities that are consumed by final users. The Make table shows the commodities that are produced by each industry. The four Requirements tables are derived from the Use and Make tables. The Direct Requirements table shows the amount of a commodity that is required by an industry to produce a dollar of the industry’s output. The three Total Requirements tables show the production that is required, directly and indirectly, from each industry and each commodity to deliver a dollar of a commodity to final users. The Use table is the most frequently requested table because of its applications to the estimates of GDP.
For more detailed information, please refer to
[1] Input-output account data by Bureau of Economic Analysis
http://www.bea.gov/industry/io_annual.htm
[2] Inter-industry relationship (Input-Output Matrix) by Bureau of Labor Statistics
Week3_Rawley and Simcoe (2013)_Aaron
Information Technology, Productivity, and Asset Ownership: Evidence from Taxicab Fleets
Since Coase (1937), theories on transaction cost economics and property rights along with a large body of empirical evidence have studied the determinants of the boundary of the firms. Demsetz (1988) propose an alternative predictor, the changes in the productivity of potential trading partners. His thesis has been lacking of empirical support due to informal and imprecise logic. Rawley and Simcoe (2013) thus develop and test a formal productivity-based theory of asset ownership.
Specifically, they examines the effect of productivity-enhancing technology adoption in taxicab industry on vertical integration and skilled workforce. They use microdata on taxicab firms’ vehicle ownership patterns from the economic census during a period from 1992 through 1997 when new computerized dispatching system were first widely adopted.
Their empirical results show that adopting such system cause taxicab firs to increase the percentage of vehicle they own and reduce the returns to skilled labor. This study contributes to two bodies of literature, the strategy literature on firm boundaries and economic literature on skill-biased technical change. First, this paper took the first step to formalize the relationship between productivity and firm boundary and empirically test it. Second, their finding contribute to an emerging view that IT adoption does not always increase the relative demand for more skilled labor.
Week3_Dewan and Ren (2011)_Xinyu Li
Prior literature states that the key to unlock the business value of IT lies in the synergy between IT investment and business strategy. Motivated by this idea, Dewan and Ren (2011) emphasizes the influence of firm boundary on the link between IT investment and firm performance. Their work differs from the previous studies in that they 1) focus on the role of the interaction between IT investment and firm strategy, 2) distinguish firms’ financial performance into return and risk, 3) classify IT investment by the nature of IT investments. The uniqueness affords their work the ability to explain the unsolved “profitability paradox”.
The paper firstly looks at how the boundary of firms moderates the relationship between IT investment and firm performance (return and risk). Two dimensions of the boundary—horizontal integration (diversification) and vertical integration—are discussed respectively. Since one major function of corporate IT is to facilitate coordination, the paper hypothesize that diversification positively moderates the link between IT investment and financial return. Likewise, it negatively moderates the IT-risk link because internal learning tend to reduce uncertainty brought by IT. Related diversification benefits more than unrelated diversification due to less coordination required by unrelated diversification. By the same token, the paper propose that vertical integration will decrease the influence IT investment has on financial risk. However, whether an IT investment is externally oriented should be taken into account when considering the moderating effect of vertical integration on the link between IT investment and financial return. Finally the paper also compares the moderating impact based on other firm characteristics such as service versus manufacturing, high IT-intensity versus low IT-intensity, recent time periods versus older time periods. All of the hypotheses are verified by empirical investigation. Robustness checks are also provided using different measurements of key independent variables and dependent variables.
Week3_Rai et al. (2015)_Vicky Xu
Fit and Misfit of Plural Sourcing Strategies and IT-enabled Process Integration Capabilities: Consequences of Firm Performance in the U.S. Electric Utility Industry
Rai et al. (2015) introduce the concept of market sourcing intensity (MSI), and propose that fit between MSI and the development of IT-enabled interfirm process integration capability improves firm profitability, assessed by return on assets, and misfit between MSI and the development of IT-enabled intrafirm process integration capability extracts penalties in firm profitability.
Rai et al. (2015) address the research question as: How does the (mis) fit between a firm’s plural sourcing strategies and the development of IT-enabled interfirm and intrafirm process integration capabilities influence firm performance? Then Rai et al. (2015) present a theoretical framework as the following (Figure 1., p868):
Where:
- H1: The marginal returns to firm performance from developing IT-enabled interfirm process integration capability increase with an increase in market sourcing intensity.
- H2: The marginal returns to firm performance from developing IT-enabled intrafirm process integration capability decrease with an increase in market sourcing intensity.
Rai et al. (2015) collected a panel dataset using multiple archival sources of firm-year (from 1994 to 2004) that included 6,685 observations for 342 major power-generation utility firms in the United States. After using the OLS estimation method, all the hypothesized relationships were validated.
The significant contributions of this paper include: (1). Elaborating the theoretical explanations on business value created by IT from a capabilities perspective, with a focus on how IT resources and capabilities, to an integrated capabilities-governance perspective, with a focus on the discriminating alignment between capabilities and governance of transactions. (2). Providing suggestions for IT executives and sourcing managers that they can collaborate to create synergies between investments in IT-enabled process integration capabilities and plural sourcing choices.
Week3_Dewan and Ren (2011)_Yaeeun Kim
IT investment as a return or risk. How does a firm increase return and decrease risk by using boundary strategies: vertical integration and diversification.
From the findings, this paper suggests that suitable boundary strategies can moderate the impact of information technology (IT) on firm performance, increasing return and decreasing risk. This tendency is apparent especially when the firm is categorized as service industry, with high levels of IT investment intensity, and in more recent time periods.
Diversification refers to the extent to which the firm chooses to operate in multiple lines of business or product markets, whereas vertical integration is the extent to which value chain activities are conducted inside the firm as opposed to contractually with business partners.
Vertical integration (VIit) is measured with two ways: The first measure is the ratio of value added to sales (Adelman, 1955). Second, an alternate measure was used for robustness, which is less sensitive to industry differences (Fan and Lang, 2000; Ray et al., 2006).
Key dependent variables are firm return and firm risk, and the set of predictor variables includes IT capital, degrees of diversification and vertical integration, along with other firm and industry control variables.
Among key independent variables, a level of diversification (DIVit) was analyzed with the entropy measure (Palepu, 1985).
From the analysis, diversification is negatively associated with both returns and risk at 1% significance level, and vertical integration is positively associated with return but negatively associated with risk model. For the individual interaction term of IT with diversification or IT with vertical integration is positive in return model and negative in risk model, confirming the significant moderating impact of firm boundaries on firm risk-return performance.
Week 3_Rawley and Simcoe (2013)_Jung Kwan Kim
Rawley and Simcoe (2013) examines how technology adoption influences firm boundaries and worker skills. Prior studies have connected the issue of the firm boundaries with asset specificity and contractual incompleteness. More specifically, transaction cost economics (TCE; Williamson, 1975; 1985) suggests that vertical integration helps firms reduce the inevitable cost of conflicts over the division of surplus in a locked-in trading relationship; property right theory (PRT; Grossman and Hart, 1986; Hart and Moore, 1990) emphasizes the incentive of ownership to make efficient but noncontractable investment. In short, TCE and PRT argue that firms are more likely to perform vertical integration with a high asset specificity and a high level of contract incompleteness. Interestingly, Rawley and Simcoe (2013) support the causal relationship between the adoption of a new technology and the increase in vertical integration by holding asset capacity constant.
Based on the in-depth look in the empirical setting of the taxicab industry, the authors find that a technological adoption leads to an increased level of vertical integration and deskilling within the firm, even in the absence of noncontractible changes in asset specificity. On the condition that the marginal benefits of information technology adoption are diminishing with worker ability, this main finding can be intuitively understood in that the technology adoption cannot replace the input capital while the mix of skills and relative productivity of employees can be easily altered.
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