IT Capital Research Articles

I.T. Investment and Intangibles: Evidence from Banks

This paper models the investment behavior of a multi‐asset firm with market power that accumulates valuable intangible assets to complement the IT capital. The investment model is estimated using data from Spanish banks on assets of different nature: material (branches, financial), immaterial (advertising and IT), and intangible (training of workers). The paper estimates that the representative bank spends five additional Euros per Euro invested in IT‐related assets in complementary intangible assets or, equivalently, intangibles amount to approximately 10 percent of the economic value of the representative bank. The remaining economic value is distributed between 28 percent from rents attributed to market power, and 62 percent to the cost of market‐purchased assets.

IT Capital Accumulation and Productivity Growth in Public Accounting Firms

<para xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink"> In this study, we apply the tripartite decomposition of productivity growth proposed by Kumar and Russell (<emphasis emphasistype="italic">Amer. Econ. Rev.</emphasis>, vol. 92, pp. 527–548, 2002) to estimate and evaluate the contribution of firms’ IT capital accumulation to their productivity growth. Analyzing a panel data on 52 public accounting firms in Taiwan for ten years from 1993 to 2002, our results indicate that the productivity growth of these accounting firms was primarily due to their accumulation of IT capital. In addition, our results indicate that services diversification towards nonaudit services and workforce quality contributed to accounting firms’ IT capital accumulation, which, in turn, led to their productivity growth. </para>

Effects of Organizational Change on Firm Productivity

An increasing use of IT facilitates firms to use more efficient organizational forms. Significant reorganizations of business processes around IT capital can thereby boost productivity growth. The aim of this study is to empirically examine how firm productivity growth is affected by organizational changes and investments in IT using a Difference-in-Difference approach on a panel of Swedish firms over the years 1997-2005. The empirical results show a positive and significant effect on total factor productivity growth for firms that invested above median in IT and at the same time undertook organizational changes.

The psychological role of the leader in turbulent times

PurposeThis paper aims to deliver a psychological perspective on the theme of leading in turbulent times.Design/methodology/approachDrawing on 20 years' experience of consulting, coaching and teaching in the field of leadership development, the author outlines the dynamics that businesses face during an economic crisis. Based on her extensive observation of workplace behavior, the author describes the psychological and emotional role that leaders need to play if they are to optimize morale and productivity during turbulent times. The author's ideas have been developed as a result of coaching numerous leaders and top teams at board and director level in FTSE 100 and 250 companies and top professional services firms, as well as SMEs and not‐for‐profit organizations. Her private sector clients come from every area, including investment banking, oil and gas, IT, property, retail, law, accountancy and venture capital. Many of these organizations operate in highly competitive markets where managing uncertainty and change is the norm. However, the economic downturn has presented additional challenges, especially to those at the sharp end of the credit crunch and the collapse in consumer confidence.FindingsIt is concluded that four leadership behaviors are critical in times of crisis. Taken together, they enable leaders to support their workforce effectively during turbulent times, so maximizing morale and performance. The paper also highlights the role of HR and specific ways in which seasoned HR professionals can help leaders manage their own emotions and demonstrate these four behaviors.Originality/valueThis article reflects the author's original, practice‐based observations about organizational dynamics and leadership behavior during challenging times.

Market Power in Discrete-Choice Demand Functions of Banking Services - An Application to Spanish Banks

This paper analyzes the evolution of price and non-price competition in the Spanish banking market during the period 1983-2003. Banks produce three outputs and the demand for each of them is modelled as a discrete-choice decision made by buyers. The decision variables of banks are, on the one hand, the interest rates, advertising expenditures and services (number of branches) that determine the consumer valuation of the bank’s output and, on the other hand, the number of workers and IT capital, that are the variable inputs used in production. We model the profit maximizing behaviour of the representative bank and jointly estimate the parameters of the demand and supply functions under the profit-maximizing restrictions with data from Spanish banks. We compare the competitive conditions in the banking industry in the first and the second part of the time period and we simulate the predicted equilibrium values of demand, supply, prices and profits under changes of the interbank interest rate and the opportunity cost of capital.

On the Impact of Digital Technologies on Corruption: Evidence from U.S. States and Across Countries

We hypothesize that the spread of the Internet has reduced corruption, chiefly through two mechanisms. First, the Internet facilitates the dissemination of information about corrupt behavior, which raises the detection risks to shady bureaucrats and politicians. Second, the Internet has reduced the interface between bureaucrats and the public. Using cross-country data and data for the U.S. states, we test this hypothesis. Data spans the period during which the Internet has been in operation. In order to address the potential endogeneity problem, we develop a novel identification strategy for Internet diffusion. Digital equipment is highly sensitive to power disruption: it leads to equipment failure and damage. Even very short disruptions (less than 1/60th of a second) can have such consequences. Accordingly, more frequent power failures will increase the user cost of IT capital; either directly, through depreciation, or indirectly, through the costs of protective devises. Ceteris paribus, we expect that higher IT user costs will lower the speed of Internet diffusion. A natural phenomenon which causes a major part of annual power disruptions globally is lightning activity. Lightning therefore provides exogenous variation in the user cost of IT capital. Based on global satellite data from the U.S. National Aeronautics and Space Administration (NASA), we construct lightning density data for a large cross section of countries and for the U.S. states. We demonstrate that the lightning density variable is a strong instrument for changes in Internet penetration; and we proceed to show that the spread of the Internet has reduced the extent of corruption across the globe and across the U.S. The size of the impact is economically and statistically significant.

Many Sectors Meet More Skills: Intersectoral Linkages and the Skill Bias of Technology

This paper presents a novel stylized fact and analyzes its contribution to the skill bias of technical change in U.S. manufacturing. The share of skilled labor embedded in intermediate inputs correlates strongly with the skill share employed in final production. This finding points towards an intersectoral technology-skill complementarity (ITSC). Together with input-output linkages, the observed complementarity delivers a multiplier that reinforces skill demand along the production chain. Reduced-form estimates suggest that the effect is quantitatively important, explaining about as much skill upgrading as outsourcing. Empirical evidence suggests that one channel through which this complementarity works is product innovation. I also analyze the importance of different drivers of skill upgrading over time. While foreign outsourcing and IT capital is associated with skill demand particularly strongly from the 1980s onwards (a period of rapidly increasing skill premia), R&D contributed stably throughout the period 1958-2005. The same is true for ITSC, which augmented within-sector skill bias in a stable fashion throughout the last 5 decades.

The Effect of IT Capital on Hospital Efficiency

The academic literature on hospital information technology is relatively sparse despite its important implications for hospital management, with only limited empirical evidence linking implementation of hospital IT systems with improvements in health care quality, financial and operational performance. This study aims to corroborate the observational evidence by using a cost function estimation approach to examine the impact of IT capital investments on hospital cost efficiency.

The Contribution of Physical, Information Technology and Advertising Capital to Output and Value of Bank Services

From Spanish bank level data for the period 1983 to 2003, this paper provides evidence on the contribution of banks' inputs to the output and the demand of banking services. Particularly, the paper studies the role played by labour, physical capital (investment per branch and number of branches) and advertising capital on the demand and supply side of banking services. As well as productive inputs, we introduce the concept of value-enhancing inputs to refer to those inputs that increase the value of banking services for costumers (demand effect). The empirical findings of this paper show that banks produce their output at branch level through the combination of services from labour and from IT capital under a constant-returns-to-scale production function. The output from labour and IT capital cannot be expanded beyond the fixed capacity of the branch which, in turn, requires a fixed investment per branch (Leontieff production function). The output and inputs at bank level are just the product of output/inputs per branch times the number of branches. The results also point that the representative branch of banks does not operate at full capacity, but banks seem to open branches according to the profit maximizing conditions of marginal return equal to marginal cost of the investment. On the other hand, advertising capital acts increasing the demand of loans and the supply of deposits for a given interest rate. Furthermore, the estimations of the demand functions of services provide estimates of the price elasticity of loans and deposits. The empirical estimation of the production and the demand functions has been performed using the so-called system-GMM estimator. This is a novel econometric technique developed to overcome the limitations of traditional econometric estimators with highly persistent data and, specifically, in production-function estimations (Blundell and Bond (1999)). Overall, the estimated contribution of all the inputs to the output of banks is just what it would be expected from the profit maximizing condition of marginal productivity equal to marginal cost. The evidence is that there are no over or under investment in capital inputs deployed by banks.

An IT capital performance indicator study: evidence from a Taiwan financial service industry case study

Assessing the performance of information technology investments is an issue that concerns every IT manager. It is an enterprise's primary goal to integrate information technology into critical business processes effectively, but the value and influence of a firm's performance is very difficult to show in financial statements and quantify using regular assessment methods. This study first reviews the existing approaches in measuring tangible and intangible information technology assets and then points out the IT capital which is a novel concept to extend the existing approaches to tackle the issue of measurement and quantification. The research method is case study oriented. There are five live case studies we have conducted. A questionnaire is designed as the tool. Scoring from surveys and findings from interviews provide the main evidence of the degree of indicator applicability.

Network economics and optimal replacement of age-structured IT capital

The constructed hierarchical optimization model of vintage capital replacement takes into account network effects and the age-dependent technological structure of capital equipment. It involves the control of a network coalition choice, endogenous investments, capital structure, and capital lifetime. The qualitative analysis of the model shows how the lifetime and financial structure of the IT capital depends on technological change. These results are relevant for strategic management on a firm level. Provided numeric examples simulate the optimal lifetime of personal computers.

IT Business Value and Industry Effects: The Role of the Competitive Environment

Prior empirical research indicates differences in IT business value across industries, but the source of these differences is unclear. In this study we examine the role of the competitive environment in moderating IT business value. We identify two dimensions of the competitive environment that are likely to shape IT business value, have a strong basis in theory, and have been studied in the context of regular capital but not with respect to IT. Industry concentration is the degree to which the output of an entire industry is produced by a few firms, and is widely used as an inverse proxy for industry competitiveness. Industry dynamism denotes change that is difficult to predict, measured as the deviation of industry sales from a trend line. We estimate the moderating impact of concentration and dynamism on the marginal product of IT and regular capital by estimating a production function using data from large U.S. firms from 1987 to 1994. Results reveal that the marginal product of IT is lower in more concentrated industries, while the opposite is true for regular capital. There is limited evidence that the marginal product of IT is higher in more dynamic industries, and strong evidence that the marginal product of regular capital is lower in more dynamic industries. Taken together, results suggest that IT may provide enhanced value to firms in less concentrated (more competitive) and more dynamic environments. The findings raise new questions about IT business value in relation to a firm's competitive environment and the differences between IT and regular capital.

A Study on the Productivities of IT Capital and Computer Labor: Firm-level Evidence from Taiwan’s Banking Industry

The current paper extends the non-neutral stochastic frontier production function—which belongs to the class of a one-step procedure as defined by Wang and Schmidt (2002) and developed by Huang and Liu (1994)—from a cross-sectional setting to a panel data modeling. Using a newly-surveyed dataset from Taiwan’s commercial banks on their investments in information and communication technologies (IT), I find that IT capital and computer labor tend to exhibit higher productivities than their non-IT and non-computer counterparts, that IT capital has positive impacts on the marginal productivities of computer labor and borrowed funds, and that the mean technical efficiency is around 87.7%. Evidence is found that the total factor productivity of the banking sector grew at an average rate of 0.28% per annum, albeit fluctuating, for the past 8 years.

Measuring Economic Externalities of IT and R&amp;D

We measure and compare externalities of IT and R&D capital stocks in different Korean industry sectors using inter-industry input-output tables of 1985, 1990, 1995 and 2000. We also compute the multiplier effects that relate to the directions of future economic effects. The key findings are as follows. First, we observed continuous capital deepening in all nine industries over the period of 1985 to 2000. Second, the backward multipliers of IT capital were the highest in the manufacturing industry. As for inter-industry externalities, the indirect backward multipliers, which exclude intra-industry backward multiplier effects within the industry, were also the highest in the manufacturing industry. Third, the forward multiplier effects of IT capital stock were the most substantial in the construction industry during the 1980s and in the manufacturing industry thereafter. Finally, using the transition multiplier matrix reflecting the backward effects of the two capitals in the past, the economic backward effects, especially the external economic effects, are predicted to increase through 2010 among all industries. The above findings suggest that, in order to maximize the forward and backward effects of the ever-increasing IT capital, we need to formulate an industry policy reducing the cost of capital accumulation in the manufacturing industry through improvement in productivity of the IT industry.

The IT revolution and productivity growth in Japan

The objective of this paper is to examine the contribution of IT investment to productivity growth in Japan. To this end, we first construct a panel data set of value added, labor inputs, IT investment, IT capital stock, and non-IT capital stock in 22 industries (including 13 manufacturing industries) from 1980–2000. We then decompose labor productivity into four terms and find that the recent slowdown in productivity is caused by the absence of a reallocation effect of labor. Further, we estimate TFP growth functions and labor productivity functions, examining network externalities of IT capital. We find that TFP growth in the 1990s is affected by positive inter-industry spillover effects from the supply side. J. Japanese Int. Economies 18 (3) (2004) 362–389.

Information Technology and Its Impact on Economic Growth and Productivity In Korea

The purpose of this study is to examine the impact of IT on economic growth and productivity in Korea during the 1971–2000 periods. The growth contributions from standard input factors, IT capital inputs, and the business cycle effect are calculated on the basis of the growth accounting framework. The study also examines the source of productivity growth, using the extended growth model and drawing attention to the role that IT and knowledge capital may have played. The results show that IT capital contributed 16.3 percent to the output growth and has a strong positive effect on the growth of labor productivity in the long run. [04]

IT Capital, Job Content and Educational Attainment

Based on a large data set containing information on occupations between 1979 and 1999, this study explores the black box surrounding the skill-biased technological change hypothesis by analyzing the mechanisms that induce information technologies to be complementary to employees with higher skill levels. Using direct, multidimensional measures of occupational skill requirements, the analysis shows that IT capital substitutes repetitive manual and repetitive cognitive skills, whereas it complements analytical and interactive skills. These changes in the within occupational task mix result in an increased deployment of employees with high levels of education who have comparative advantages in performing non-repetitive cognitive tasks.

Information Technology and Productivity Growth Across Countries and Sectors

The extraordinary success of the U.S. economy and the parallel growth slowdown of the large European countries and Japan in the 1990s bear a simple rationale. The United States has eventually benefited from the effective adoption of information technologies. The introduction of the newly installed IT capital has not instead enhanced aggregate capital accumulation and TFP growth in Europe and Japan. At least on impact, IT capital has mainly displaced existing capital and methods of production rather than supplementing them. The limited growth-enhancing effects from information technologies in countries other than the United States have occurred in the IT-producing sectors, while the IT-using industries have contributed the bulk of productivity gains in the United States.

Employment and IT capital in Japan

The purpose of this article is to investigate the relation of employment and IT capital. In particular, it examines whether employment increases or decreases as IT capital increases. The elasticity of substitution between IT capital and labour has drastically increased in the latter part of the measuring period. An increase in capital and IT capital was associated with a reduction of labour. Recently, the impact of IT capital on labour demand has increased.

Information Technology Value through Different Normative Lenses

:The influence of IT investments on organizational performance is revisited. Bounded rationality, organizational controls, and political forces may constrain optimal selection of inputs and appropriate substitution between inputs. For example, firms may not be able to attain an optimal level of IT by substituting IT for labor (for reasons such as pressure from the labor union). Besides estimating a link between IT investments and firm output, this paper presents a study of the link between IT investment levels and the efficiency of processes.Nonparametric and parametric techniques were applied to financial data on hospitals collected over a period of eighteen years. We found that cost and technical and allocative efficiencies are statistically significant in the production framework. We also found that hospitals that were characterized by high technical efficiency also used a greater amount of IT capital than firms that exhibited low technical efficiency. A group of hospitals exhibiting high technical efficiency also exhibited low allocative efficiency, indicating that, while processes may have been efficient, resource allocation and budgeting between various categories of capital and labor have not been efficient. Our results also differ from previously published results because we find that IT labor had a negative contribution to productivity and that non-IT capital had a greater contribution to productivity than IT capital.