Financial Arbitrage and Information Technology

Abstract

This abstract was created post-production by the JFI Editorial Board. In his 2003 controversial article entitled "IT does not matter", Nickolas G. Carr argued that Information Technology (IT) has lost its magical power to provide competitive advantages and that corporations would be better off focusing on the risk of IT rather than looking at IT as a strategic asset that can provide opportunities. On the other hand, IT guru, Robert M. Metcalfe, views IT investment as a source of competitive advantage. He further argues that it determines the path of sustainable excellence for a corporation. We posit that truth may lie in the middle. That is, it is neither ‘IT does not matter at all’ nor it is ‘IT matters all the time’. Our empirical findings indicate such a result when we linked financial arbitrage and information technology. Our data show that IT investment matters sometime and not always. The implications of our findings suggest that there is an optimal IT investment level. At the beginning stage, the strategic benefits from IT investments far exceeds the risk of IT investments. At some point the role reverses and the risk and mis-utilization of IT investments outweigh the independent and interactive strategic benefits of IT. The challenge is to find the optimal level of IT investments. That will be our next endeavor.