Faculty Scholarship 1994 - Present

Empirical Analysis of the Relationships Between Information Technology and Diversification

IT is widely used for efficient and better coordination of business resources across multiple markets by reducing coordination costs. This paper empirically examines the relationship between IT and diversification, including related and unrelated diversification. Based on microeconomic theory of diversification and previous information systems research, this paper provides empirical evidence for the relationship between the two. For the empirical analysis, we employ two data sources: a dataset of information systems (IS) spending by annually collected by International Data Group over period 1988 to 1992 and the Compustat database. Our results suggest that IT spending is strongly associated with increases in diversification. We further find that IT spending has a positive relationship with both related and unrelated diversification, but the link is stronger for related diversification. This empirical evidence provides corporate managers with some implications for their strategic decisions on diversification.