Weekly Briefs
Week 9- Reading Summary-Leting Zhang
Pang, M.-S., Tafti, A., & Krishnan, M. S. (2014). Information Technology and Administrative Efficiency in U.S. State Governments: a Stochastic Frontier Approach1. MIS Quarterly, 38(4), 1079-A16.
In recent decades, IT has become an indispensable tool for major strategic initiatives in state governments, but whether these efforts improve the administrative efficiency remain is unknown. In order to get a better understanding of IT’s impact on the public sector, this study estimates the relationship between IT spending and cost efficiency in U.S. state government.
IT investments in government organizations can lead to cost efficiency improvements in two ways: reducing human labor and enhancing the productivity of the administrative process; automating digitized business and increasing transparency and accountability in administration. Furthermore, the study proposes three moderating factors from economic, demographic and political environments respectively, specifically, given in the states with more private-sector IT industries or a larger share of rural population or more divided government, the positive of IT would be stronger. Then authors leverage several public data sources and use a two-stage estimation approach to analyze data. Because there is not a collective output measure for state government, and production of public service is exogenous, the study uses cost function and to posit state governments attempt to limit the use of inputs accordingly. In the first stage, they measure the cost efficiency of state governments in a stochastic frontier analysis with a translog cost function; in the second state, they regress the estimated efficiency on IT measures and other exogenous factors that are used in previous literature. The estimated results support all of their hypothesis.
The study offers meaningful policy implication, specifically, the results justify states governments’ investment in IT. It also contributes to the IS by integrating research from IS, political sciences, and public economics, expanding the boundary of IT value research to the public sector.
Week 9 Reading Summary – Pang et al. (2016, Mgt Sci) – Xi Wu
Pang, M.-S., Tafti, A., & Krishnan, M. S. (2016). Do CIO IT Budgets Explain Bigger or Smaller Governments? Theory and Evidence from U.S. State Governments. Management Science, 62(4), 1020–1041.
There is a fundamental economic debate among the public, the media, and academia as to what is the proper boundary and role of a government in the contemporary economy. Technological development as one of the key factors behind government growth, should be paid more attention. This study is interested in how information technology (IT) investments made by governments affect the size of government spending. More specifically, this paper examines the relationship between IT budgets of a state chief information officer (CIO) and state government size.
Two opposing hypotheses are proposed. One is that IT investments make state administration more efficient, productive, and transparent, leading to a reduction in state expenditures. The other one is that state governments can utilize digital technologies in initiating a new range of public services that would not have been offered without IT and having a greater control over functions that external organizations would otherwise handle, thus increasing government spending.
Using a variety of data on IT spending and state government expenditures, this study finds that greater IT investments made by a state chief information officer (CIO) are associated with lower state government spending. It is estimated that on average, a $1 increase in state CIO budgets is associated with a reduction of as much as $3.49 in state overall expenditures. Dynamic panel-data model is applied the empirical analysis. A series of robustness checks are implemented to provide further evidences and support the hypothesis.
This work contributes to the IS literature by expanding the boundary of IS research on IT and organizational size to the public sector organizations, to which the IS research has not paid as much attention as it has to the business setting.
Week 9 Reading Summary (HK)
Pang, M.-S. (2017). Politics and information technology investments in the U.S. federal government in 2003-2016. Information Systems Research, 28(1), 33-45.
Government information technologies (IT) are often plagued by obsolete legacy systems that are expensive to maintain. These systems are often left in place due to a variety of factors including risk adverse employees, lack of IT commitment/consensus across governing parties, and the sheer volume of difficulties associated with replacing or upgrading IT systems so large in scope that are continually in use. Furthermore, there is a wide variation in IT systems and spending across various agencies and bureaus. To further understanding of factors that influence IT spend, Pang (2017) draws from a range of political science, public administration, and information system literature to develop a theoretical understanding to a previously overlooked phenomenon.
Pang hypothesizes that a federal agency’s capacity-building IT investments are associated with (i) legislative approval for the chief executive, (ii) government dividedness, and (iii) ideological characteristics of the agency. A generalized estimating equation analysis, an approach widely employed for estimating panels with a fractional dependent variable, was conducted on panel dataset of 135 federal agencies and bureaus between 2003 and 2016. Results indicated that the there is a significant, positive relationship between the senate’s confirmation of the chief executive and the agency’s IT investments. Also, there is significant support for the notion that federal agencies are less likely to invest in new IT development under a divided government. Finally, there is significant support for the fact that ideologically moderate federal agencies invest more in development, modernization, and enhancement IT spending. These findings indicate that national politics significantly impact IT investments; investment is dependent on securing compelling policy mandates and political legitimacy from Congress. Therefore, it is proposed that Congress pay more attention to and provide more support for IT investments to ensure the IT infrastructure supports the federal government’s goal to be more agile, flexible, and efficient.
Week 9 – Pang and Pavlou 2017 – Joe
Pang, M.-S. and Pavlou, P.A. (2017) “Armed with Technology – Preventing Fatal Shootings by the Police,” A Working Paper.
The trust between the police and the public in many U.S. cities is more acrimonious than ever before since the Chicago shooting of Laquan McDonald. While technology, especial IT, has enhanced human’s decision-making process in many fields, we do not have sufficient knowledge of the effectiveness of these technologies, particularly in terms of their role in affecting the use of lethal force on civilians by the police. This study theorizes how technology use for intelligence analyses and access influences a police officer’s decision to use lethal force.
With a panel data merged of fatal shootings from The Washington Post and killedbypolice.net in 2013-2016, the empirical analyses show that both the use of smartphones and the statistical analyses of crime data by U.S. local police departments are associated with a significant decrease in fatal shootings by the police. The authors then explore the moderating effects and find that the positive effect of technology use is more pronounced for armed suspects and among males, the youth, and minorities.
Specifically, the authors use signal detection theory to construct a decision optimization under uncertain, which can be moderated by the use of technology. To address the unobserved heterogeneity caused by the spatial contagion of crimes and violence. The authors utilize a spatial panel autoregressive GLS Model, which allow the residual of a random effects model spatially correlated, to validate the main hypothesis that the technology can lead to a decrease in fatal shootings by the police. To test the moderating effects in hypothesis 2, the authors conduct subsample analysis with a SUR random effects model.
This study contributes to the Information Systems (IS) literature by 1) demonstrating the significant role of technology use in highly uncertain and violent environments, 2) uncovering the nuanced effects of technology use that vary by gender, age, and ethnicity, and 3) enhancing our understanding of how IT creates value for an organization in uncertain and life-threatening environments.
Week 8 – Kim et al. 2016 – Joe
Keongtae Kim, Anandasivam Gopal, Gerard Hoberg (2016) Does Product Market Competition Drive CVC Investment? Evidence from the U.S. IT Industry. Information Systems Research 27(2):259-281.
Companies need ideas to keep competency advantage on innovation. Besides the traditional internal R&D investment to gain innovative knowledge, Firms have several avenues available to access such investment from outside thereby complementing traditional R&D. Corporate venture capital (CVC) is one of the outside resources, classified as open innovation. Whether to use CVC to gain innovative knowledge is heterogeneous among companies in different industries. The importance of knowledge and learning is likely to be most relevant in technology-intensive industries where persistent innovation is a key determinant of success. For companies in technology-intensive industries, such as IT industry, a critical factor that might also have a strong incremental influence on the observed intensity of CVC spending is product market competition. This study explores the relationship between product market competition and IT companies CVC investment by answering the following two questions: 1) Does product market competition faced by IT-producing firms lead to higher investments in CVC spending, all else equal? 2)Do CVC investments lead to higher innovation output? If so, is the relationship moderated by the technology leadership of the investing firm?
The authors proposed to measure product market competition using metrics derived from 10-K textual similarity. Clearly, just using OLS to regress CVC spending on product market competition with covariates or fixed effects cannot uncover the causality. The baseline model suffers from omitted variable bias and reverse causality concern. The authors then tried to use GMM for the dynamic panel data to relief the concerns. The results are consistent with the hypothesis even with several robustness checks using other instruments and panel data Heckman analysis, etc. The paper may still suffer sample selection bias due to the sample filtration. The observations remained in the sample are companies are industry leaders and operate at least 10 years from 1997 to 2007, during when the IT industry leaders turned over significantly, the CVC was hot and somewhat abused, and the market competence was becoming more fierce.
This work contributes to the IS literature by 1) examine product market competition, a systemic feature of the IT industry, as one such driver of this shift from internal to external innovation spending; 2) broadening the focus of IS research on competition to include its effects on the use of external innovation; 3) showing that R&D plays a more important contingent role in IT firms than previously acknowledged.
Forman, C. and van Zeebroeck, N. (2012)-Siddharth Bhattacharya
The paper tries to investigate how the diffusion of the internet influences research collaboration within firms.Previous literature has suggested that research collaboration is hampered by the existence of significant coordination costs that increase with team size and that adoption of information technology such as internet lower coordination costs and thus increase returns of collaborative work.However although some works exist as to whether IT adoption helps academic collaboration no such work exists for industrial collaboration.This is the first work to do so.Motivating the hypothesis using prior models of Becker and Murphy(1992) the authors hypothesize that increase in IT investment(here internet adoption) will be associated with an increase in the likelihood of geographically dispersed, multi inventor collaboration relative to collaboration within the same region/single inventor outputs.The data comes from multiple sources including:patenting data from USPTO,R&D data from Compuestat,regional controls from US census county business patterns.The analysis used is a difference in difference framework, comparing the incidence of a collaborative patent in firm-location pair prior to the treatment of basic Internet adoption to the incidence after the treatment .The model is a fixed effects linear probability model The model controls for observable changes in firm-pair conditions,fir-location employment etc which could affect collaboration volume.It also controls for location fixed effects.The diff-in-diff results show that there is a statistically significant increase in the incidence of collaborative patenting for cross-location pairs adopting Internet over the period, relative to non adopters.This however is not the case for same location teams or single inventors.To test the robustness of the findings the paper uses falsification tests and instruments to rule out endogeniety. The results remain robust and consistent.The research tries to answer a debate in previous literature of whether adoption of IT can lead to increase in collaboration due to reduction of coordination costs and managerially has implications for integration of geographically dispersed organizations/long run design of research organizations within firms.
Paper Summary- Week8 Jack Tong
Paper: Kim, Keongtae, Anandasivam Gopal, and Gerard Hoberg. “Does product market competition drive CVC investment? Evidence from the US IT industry.” Information Systems Research 27, no. 2 (2016): 259-281.
The motivation of this paper is to explore how product market competition will affect the propensity for firms to use corporate venture capital (CVC) as a venue for innovations. CVC is defined as minority equity investments by established firms in start-ups, typically alongside traditional venture capitalists (VC). The primary drivers for CVC are knowledge and learning for persistent innovation and product market competition rather than financial returns. The authors collect CVC funding information from the VentureExpert data set, augmented with data from CompuStat and the National Bureau of Economic Research (NBER) patent database. The authors use a novel measure of competition based on 10-K product descriptions-The textual network industry classification (TNIC). TNIC classifications are based on the product market vocabulary in each firm’s 10-K and are updated every year. Firms using similar product market vocabularies are classified as being in the same industry, allowing for a more accurate measure of competition that captures the dynamic nature of the IT industry. The empirical results suggest that firms in competitive markets make higher research and development (R&D) and CVC investments. In addition, the results indicate that increasing product market competition leads to a shift away from internal R&D spending and into CVC. These movements are significantly stronger for technology leaders, i.e., firms with deep patent stocks, in the IT industry. The authors also find that CVC appears to be an effective way of exploiting external knowledge for technology leaders in the IT-producing industry, but not for technology slow starters. CVC investments lead to significantly more patent applications for technology leaders but no appreciable difference for slow starters.
Week8 – Reading Summary -Leting Zhang
Tiwana, A., Kim, S. K., & Kim, S. K. (2015). Discriminating IT Governance. Information Systems Research, 143(December 2015).
Based on the idea that different types of IT assets must be governed different, the paper examines an interesting research question: how does the interplay between firms’ IT governance choices and departmental peripheral knowledge influence IT strategic agility?
The theoretical foundation is Jensen and Meckling’s theory, the central idea is that decision rights must be colocated with the knowledge needed to make those decisions when the two are not colocated, there are delegation solution and transmission solution. In the IT context, both the delegation and transmission solution should be used, increasing the peripheral knowledge is also important in tandem with IT governance. Then they propose, For the IT apps, which are often uniquely tailored to different functions, JM’s delegation solution could minimize problems like agility-imperiling delays. Then, with more business knowledge, IT unit could better help line functions, which could increase the strategic agility. However, for IT infrastructure decision which requires deep technical expertise and holistic understanding, JM’s delegation solution implies the centralization of IT infrastructure governance is an optimal strategy. In the meantime, with the increase in line function’s technical knowledge, the strategic agility could be promoted.
In order to test these hypotheses, the authors design a survey and collected matched-pair data from senior IT managers and line function managers in 105 U.S firms. Data on IT strategic agility were collected from line function managers, other variables come from IT managers. Constructs in surveys are based on prior literature. After testing their validity, they use Garen’s two-stage econometric techniques to analyze the data. In the first stage, they evaluated the endogeneity concern by Hausman test. In the second stage, they use a three-step hierarchical weighted least squares (WLS) model to test hypotheses.They also solve some main endogeneity concerns. The paper’s main contributions are showing 1. IT governance enhances IT strategic agility only when it is discriminatingly aligned with departments’ peripheral knowledge; 2. governance-contingent nature of which department needs peripheral knowledge.
Week 8 Reading Summary – Tiwana and Kim (2015) – Xi Wu
Tiwana, A., & Kim, S. K. (2015). Discriminating IT Governance. Information Systems Research, 26(4), 656–674.
Strategic IT agility is one important weapon for firms that using IT to consistently create a series of temporary advantages, introducing a new one before rivals could even finish copying the last one. This study asks the question: why are some firms more adept at using IT in their pursuit of strategic opportunities? The belief is that the secret for exploiting IT for strategic agility is how it is governed, i.e., which department makes what IT decisions. This study addresses the research question: How does the interplay between firm’s IT governance choices and departmental peripheral knowledge influence IT strategic agility.
The theoretic foundation is the JM theory that decision rights must be collocated with the knowledge needed to make those decisions. This study develops the idea that firms’ IT governance choices foster IT strategic agility only when their alignment with departments’ peripheral knowledge is discriminating—discriminating in that only a specific department’s peripheral knowledge induces agility for a specific class (apps or infrastructure) of IT decisions; which department has peripheral knowledge must be aligned with which department makes what IT decisions.
Matched-pair data from 105 U.S. firms are collected. All principal constructs using reflective multi-item Likert scales are measured using the firm’s IT function as the unit of analysis. To account for the endogeneity in firms’ IT governance choices, several instrumental variables are used. The two hypotheses about IT app governance and IT infrastructure governance are theoretically support by a three-step hierarchical weighted least squares (WLS) model. This study contributes theoretically to discriminating alignment and governance-contingent value of peripheral knowledge in IT governance literature.
Week 8 Reading Summary (HK)
Saldanha, T. J. V., Mithas, S., & Krishnan, M. S. (2017). Leveraging customer involvement for fueling innovation: The role of relational and analytical information processing capabilities. MIS Quarterly, 41(1), 267-286.
By drawing on three streams of literature, customer involvement, innovation, and IS, Saldanha, Mithas, and Krishnan (2017) were able to respond to calls for insight of how IT enables customer-focused innovation. Previous literature had contradictory findings consider in the impact of customers on the innovation process. On one hand, industry leaders, such as Lego and Sony, and researchers have found that customer involvement in the innovation process can be beneficial. On the other hand, some researchers (e.g., Ittner & Larcker, 1997) have found that it can negatively impact innovation by causing the firm to be reactive instead of proactive. Using a combination of data from several sources including InformationWeek and Compustat, Saldanha et al. (2017) were able to empirically demonstrate that congruent IS can complement the relationship between specific types of customer involvement and innovation.
With respect to customer involvement, the extent to which a firm interacts with customers while developing a product (Carbonell et al., 2009), Saldanha et al. (2017) considered two types: information-intensive (ICI) and product-focused customer involvement (PCI). First, ICI considers the information collected on customers via customer opinion and feedback as well as structure mechanisms such as focus groups. To help manage and analyze such large datasets, Analytical Information Processing Capability (APIC) software such as business analytic technologies can be employed by the organization. Second, PCI captures involvement when the customers are engaged by the firm to actively participate in codeveloping products resulting in customers driving product development or custom configurations of products. CRM software can be employed to help manage relationships with customers as captured under Relational Information Processing Capability (RIPC) software. Effectively, results, including those from the original negative binomial models as well as various robustness checks, indicated that RIPC and AIPC complement the link between PCI and ICI respectively and firm innovation.
Susarla et al 2012-Siddharth Bhattacharya
Traditionally , outsourcing deals require long term contracts between clients and the vendor and this has been a major area of focus of most of the previous literature. This has also lead to frustration on the part of pretensioners who seek sustainable value from outsourcing. The paper focusses on renegotiation of contracts and investigates the role of decision rights delineated ex ante that enable Pareto improving amendments. Specifically, the authors looks at the effect of flexibility provisions, termination of convenient rights and redoployability rights on part of the vendor to areas outside the contract on likelihood of pareto improving amendments against the default outcome of parties completing the contract without ex post renegotiation.
Two empirical challenges had hampered previous studies namely: lack of good data and lack of rigorous identification strategies. The author was able to overcome this problem by using 10-Q, 10-K, and 8-K filings of firms(SEC) coupled with data from press releases, trade and business reports and press releases from client and vendors.The authors use a probit model for their initial analysis to find the probability of presence of Pareto improving amendment of a contract between client and vendor where as the Ivs include decision rights delineated ex ante, the characteristics of the task contracted upon, contractual provisions, vendor specific characteristics and other client characteristics(including other controls). The results show that flexibility provisions, termination for convenience rights, and contractual rights whereby vendors are granted rights to reuse know-how result in Pareto improving amendments. . The results are robust to potential endogeneity of contractual provisions when parties have the feasible foresight and to the possibility of adverse selection in the sample.
The research contributes to literature by bringing in the angle of renegotiations in contractual decisions highlighting the importance of renegotiation design in enabling adaptation ex-post. It also has implications for practice. Few limitations of the analysis include long term knowledge spillovers(due to redeployability) and noncontractual mechanisms of enforcement which may affect ex post renegotiation.
Paper Summary-Week7 Jack Tong
Paper: Gopal, A. and Koka, B.R., 2012. The asymmetric benefits of relational flexibility: evidence from software development outsourcing. Mis Quarterly, pp.553-576.
The authors focus on a critical manifestation of relational governance – the presence of relational flexibility in the exchange relationship – and argue that the enacted observation of relational flexibility is driven by perceptions of exchange hazards. The authors propose that the benefits accruing from it are asymmetric and depend on how the exchange risks are apportioned by the formal contract. They hypothesize that relational flexibility provides greater benefits to an exchange partner that faces the greater proportion of risk in a project, induced through the contract. In addition, they hypothesize that these benefits manifest on the performance dimensions that are of importance to the risk-exposed partner. The authors test these hypotheses on 105 software projects completed by a software outsourcing vendor for multiple clients. The results show that relational flexibility positively affects profitability in only fixed price contracts, where the vendor faces greater risk, while positively affecting quality only in time and materials contracts, where the client is at greater risk. The analysis provide evidence for the asymmetric benefits from relational governance, thereby arguing for a more contingent and limited view of the value of relational governance, based on risk-exposure, rather than the more expansive view prevalent in the literature contending that relational governance provides benefits for all parties to an exchange.
Week 7 – Reading Summary – Gopal and Koka (2012) – Xi Wu
Gopal, A., & Koka, B. R. (2012). The Asymmetric Benefits of Relational Flexibility: Evidence from software development outsourcing. MIS Quartely, 36(2), 553–576.
Situating the vendor-client relationship in the center of a series of economic and social interactions between organizations. As exchange hazards increase in the relationship, formal contracts are limited in their ability to rein in opportunism due to their incompleteness. Thus, relational governance plays a critical role in the relationship. There are two gaps in current views, one is assumption that these enacted relational mechanisms provide symmetric benefits to all parties. The other gap is, how is value from relational governance captured for different parties in inter-organizational economic activities.
This paper argues that the enacted observation of relational flexibility is driven by perceptions of exchange hazards. This paper proposes that the benefits accruing from relational flexibility are asymmetric and depend on how the exchange risks are apportioned by the formal contract. In addition, it hypothesizes that these benefits manifest on the performance dimensions that are of importance to the risk-exposed partner. These hypotheses are tested on 105 software projects completed by a software outsourcing vendor for multiple clients.
The results show that relational flexibility positively affects profitability in only fixed price contracts, where the vendor faces greater risk, while positively affecting quality only in time and materials contracts, where the client is at greater risk. In contrast, the impact of relational flexibility on quality is higher in T&M contracts where the client bears the greater portion of risk. The findings highlight the need to establish risk exposure first, and then examine the effects of flexibility on performance contingent on risk exposure. They also highlight the implications of relational governance for the performance dimensions of interest. In addition to the theoretical contributions, this paper also makes a methodological contribution by using a triangulating approach to examine the endogenous interactions of relational flexibility and contract type on project outcomes.
Week7- Reading Summary -Leting Zhang
Given the sourcing trends are unexamined fully, the paper establishes two research goals:1. assess whether organizations are trending toward one sourcing approach over another;2. examine the extent to which organizational antecedents influence the relative rate at which organizations move toward a specific IS sourcing configuration. Specifically, what’re the answers in the context of healthcare and sourcing decision within EMRS (Electronic Medical Record Systems).
Under the theoretical framework of institutional theory, the authors identify several factors that may impact institutional pressures and therefore influence the adoption decision. 1.strategic orientation, more specifically, whether a hospital is for-profit or not, teaching or not; 2. formal structure, including hospital size and hospital health system size; 3. Case complexity. It mainly uses two data sources: HIMSS database and HospitalCompare database. Thus they can capture the modules that were integrated into the EMRS, the associated suppliers and the contract year, then they can construct the patterns of implementation over year.Then they code sourcing strategies and compare sequence similarities using a matching algorithm by R. Every hospital receives a score based on how many moves it would take to transform its sequence into the prototypical single-sourcing sequence. For the independent variables part, they mainly focus on five variables, which are antecedent, and their interaction with time. The result shows there is not a statistically significant interaction between time and FP hospital; teaching hospitals move toward single-sourcing more quickly; Hospital with higher CMI is more slowly in adopting single sourcing.As their hypotheses put, the size of a hospital has a statistically significant negative interaction with time, but it is not the case for the size of the hospital system. They also give reasonable explanations for the inconsistency.
The paper has several theoretical and managerial contribution. For example, it uses a novel sequence analysis approach to quantifying sourcing configurations. What’s more, it illustrates the how institutional factor influence sourcing strategy factors.
Week 7 Reading Summary (HK)
Angst, C.M., Wowak, K.D., Handley, S.M., and Kelley, K. (2017). Antecedents of Information Systems Outsourcing Strategies in U.S. Hospitals: A Longitudinal Study. MIS Quarterly, 41(4), 1129-1152.
Angst, Wowask, Handley, and Kelly (2017) explored information systems sourcing strategies in hospitals to develop an understanding of preferences between single-sourcing and multi-sourcing strategies and their antecedents. Organizations can employ single-sourcing strategies, where all information systems are provided by one supplier, or multi-sourcing strategies, which involve an integration of information systems from a variety of suppliers. Both sourcing strategies come with advantages and disadvantages; for example, single-sourcing allows for a more cohesive system, but one supplier may not be able to provide a sufficient product in all required areas, while multi-sourcing allows for superior products for each domain, but might result in additional IT costs or inter-system communication issues. That being said, results considering nearly all U.S. hospitals over a nine-year period from 2005 to 2013 using sequence analysis across the five IS modules indicated that hospitals were transition to single-sourcing strategies. This finding is counter to larger firm trends favouring multi-source systems. However, the rate at which the hospitals are transitioning to a single-source system depends on various institutional factors.
Leveraging institutional theory, Angst et al. (2017) proposed that organizational antecedents such as strategic orientation (for-profit versus non-profit and teaching versus non-teaching), formal structure (size as the log of the number of hospital beds and membership of larger health systems), and internal dynamics (patient case complexity) will impact hospitals’ rates of transition. Results indicated that there was no significant difference in transition speed between for-profit and non-profit hospitals, teaching hospitals moved towards single-source more quickly than non-teaching, larger hospitals moved towards single-source more quickly than smaller hospitals (which were employing single-source earlier on), hospitals in smaller health systems moved towards single-source more quickly than those in larger health systems, and hospitals with less complex cases move towards single-source more quickly than those with more complex cases in later years.
Week 7 – Susarla 2012 – Joe
Anjana Susarla, (2012) Contractual Flexibility, Rent Seeking, and Renegotiation Design: An Empirical Analysis of Information Technology Outsourcing Contracts. Management Science 58(7):1388-1407.
Although a substantial body of research recognizes that contracting for information technology (IT) services is inevitably incomplete. Since traditional complex IT outsourcing deals require long-term contracts, renegotiation design plays a more crucial role compared with that rent-seeking in other industries. However, two empirical challenges hampered the deeper exploration: the lack of appropriate data and the lack of rigorous identification strategy. The author addressed the gap by using a unique sample of 141 IT outsourcing contracts and by measuring the renegotiation decision results via Pareto improving amendments.
To get a deep insight into the renegotiation, the author examined the role of decision rights delineated ex-ante in enabling Pareto improving amendments and in resolving the trade-off between adaptation and rent seeking. To address the endogeneity of the relationship between ex-ante decision rights and Pareto improving amendments, she used a contract date prior to 2000 (coded as a binary variable) as an instrumental variable that affects the presence of flexibility provisions. The results show that flexibility provisions, termination for convenience rights, and contractual rights whereby vendors are granted rights to reuse know-how are associated with Pareto improving amendments. The results are robust to potential endogeneity of contractual provisions when parties have the feasible foresight and to the possibility of adverse selection in the sample.
This work contributes to the literature by empirically showing the role of renegotiation design in fostering flexibility in IT outsourcing and by highlighting the nature of investments in the IT context and the implications for renegotiation design. A complementary approach is to examine the role of relational contracting that enables joint governance and resolution procedures.
Paper Summary-Week6 Jack Tong
Paper: Li, C., Peters, G.F., Richardson, V.J. and Watson, M.W., 2012. The consequences of information technology control weaknesses on management information systems: The case of Sarbanes-Oxley internal control reports. Mis Quarterly, pp.179-203.
Academia research holds different opinions toward the SOX (Sarbanes-Oxley Act) act and some scholars claim SOX is bad for business organizations because of the additional regulations and burdensome expense, while others consider SOX is good for business organizations since it helps firms to point out deficiencies in information system. This research builds up on the findings of Feng et al. 2009 and considers the extent that the existence and resolution of information technology control weaknesses impact the ultimate usefulness or quality of the information produced by the financial reporting system(FRS). The author hypothesizes that the stronger (weaker) IT controls over the FRS, the higher (lower) the information quality produced by the system. The authors use the firm’s SOX 404 Management Report on Internal Controls to identify the material weakness of IT controls, and categorize the control weakness across three dimensions: 1. Data processing integrity, 2. System access and security, 3. System structure and usage. The authors find that firms reporting IT material weaknesses in internal control tend to have significantly higher management forecast errors than firms reporting either effective internal controls, or non-IT material weaknesses, accounting for firm size, financial performance, and earning characteristics.
The regression analysis finds that both IT control material weakness and non-IT control material weakness are positively correlated with the forecast errors, but the magnitude of IT control material weakness is more than 3 times larger than that of non-IT control material weakness. The authors also find that the material weaknesses on processing integrity has the strongest impact on the forecast errors.
Week 6 – Masli et al -Siddharth Bhattacharya
The paper talks about the effect of IT deficiencies on higher executive(CEO/CFO) turn over in firms. Most of the previous research has applied the framework that the greater the shared knowledge and mutual trust among top executives greater the success among IT firms.This body of knowledge has not shed any light on which senior executives should take care of which specific IT management activities etc.Thus the paper tries to answer for which IT management responsibilities are particular senior executives held accountable for serious IT deficiencies?.The paper takes advantage of the Sarbanes-Oxley Act of 2002 (SOX) which was established to strengthen internal controls over financial reporting by U.S. public firms helping capture IT material weakness.Te paper next goes on to develop multiple hypothesis that firms reporting higher number of IT material weaknesses will experience greater likelihood of CEO/CFO turnover.Next,the authors divide the material weakness into categories of global IT material weakness,demand and supply side IT materiel weakness and posit that firms reporting higher number of global/demand side IT material weaknesses will experience greater likelihood of CEO/CFO turnover.Using data from Audit Analytics, authors examined each firm’s reported material weaknesses and classified each as either an IT material weakness or a non-IT material weakness.Then they combined data from SEC proxy statements to identify CEO/CFO turnovers.The analysis involves probit regression with CXO turnover as dependent variable and NUmber of IT weaknesses/number of non-IT weaknesses as IVs.The results show Number of IT Weaknesses is significant in predicting CEO
turnover.Results also show that IT Architecture,IT Control Oversight–External are significant predictors as well.It also shows that IT Control Oversight–Internal to be a strong predictor.The results are robust and Heckman model controls for any endogeniety concerns due to selection bias.The the findings suggest that CEOs and CFOs were observed to be selectively affected by serious IT deficiencies. For CEOs, deficiencies traced to IT Architecture and to IT Control Oversight–External were associated with higher turnover likelihoods. For CFOs, deficiencies traced to IT Control Oversight–Internal were associated with higher turnover.Inconsistencies and limitations of the study are discussed.Contributions to IS,managements and practice are discussed.
Week 6 Reading Summary – Xue et al. (2011) – Xi Wu
Xue, L., Ray, G., & Gu, B. (2011). Environmental Uncertainty and IT Infrastructure Governance: A Curvilinear Relationship. Information Systems Research, 22(2), 389–399.
Extant research predicts that firms tend to decentralize IT governance in more uncertain environments. But empirical work in this area presents mixed result. To develop a deeper understanding of the relationship, this paper investigates the issue by studying the relationship between environmental uncertainty and IT infrastructure governance in a sample of business units from Fortune 1000 companies.
Centralization of IT infrastructure provides the benefits of economies of scale as the same IT platform can be leveraged across different business units, thereby reducing the unit cost of IT infrastructure for each business unit. But when uncertainty increases, the benefits of responsiveness provided by more decentralized IT infrastructure governance are likely to outweigh the benefits of centralization. However, decentralization of IT infrastructure governance raises issues of control. When uncertainty increases from the intermediate to high level, firms may switch from decentralization to recentralizing IT infrastructure governance.
The key proposition is that the relationship between environmental uncertainty and decentralization in IT infrastructure governance is best characterized as a curvilinear relationship. Moreover, the study proposes that business unrelatedness between business units and their headquarters moderates. The dataset is obtained from the CI, Compustat database, SDC Platinum Mergers and Acquisitions databases. Binary logistic regression model is applied to test the hypotheses. The result support all the hypotheses.
The key theoretical implication of this study is that the relationship between environmental uncertainty and IT infrastructure governance is likely to be more complex than that suggested by the prior literature. This paper also provides practical implications to managers when they make IT infrastructure governance decisions.
Week6-Reading Summary- Leting Zhang
The Sarbanes-Oxley Act of 2002 had a pervasive influence on forms. Among many articles, SOX section 404 highlights the importance of controls related to the financial reporting function of management information systems, it requires a regular assessment of the quality of the financial reporting function, which provides conditions for this research.
This paper examines how weakness in IT controls impact the quality of the information and cause poor forecasts. It also investigates how this relationship varies by the type of IT material weaknesses reported.
The material weakness is defined as a control deficiency that results in a reasonable possibility that a material misstatement of financial information will occur without the being detected or corrected. The paper highlights the importance of IT in producing meaningful financial reports. Thus IT weaknesses will have a significant negative impact on data quality. So they propose for firms with SOX 404 IT material weakness will have lower management earnings forecast accuracy, comparing to firms have effective internal controls and non-IT material weakness. In order to investigate the different impacts caused by different IT material weakness, the author classifies the control weakness into three categories: 1. data processing integrity; 2. system access and security; 3. system structure and usage. It proposes that IT material weakness related to the data processing integrity category will have the greatest negative impact on information quality and forecasting accuracy. Their research model is OLS regression. The dependent variable is management forecast error, the focal independent variables are whether a firm has IT material weakness and the dimensions the weakness in. They collect data on SOX 404 report, financial report and forecast, the time span is 2004 to 2008. After a series of robustness check, the hypotheses are supported.
This paper contributes to the IS literature by providing evidence linking overall IT controls and their relative quality dimensions to the quality of management decision outcome.