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Information technology (IT) investments account for a significant proportion of capital budgets of most firms today. While research attention so far has been focused on if and how firms benefit from these investments, limited attention has been paid to understand what determines the IT investment levels of firms. In this study, we examine the effects of institutional pressures and firm characteristics on the IT investment levels of a firm after controlling the financial conditions of the firm. Using available data from secondary sources, we find that the IT investment intensity of a firm is positively associated with that of its competitors, suppliers, and customers. We also find that the degree of institutional shareholding is positively associated with its IT investment intensity. Our results shed light on the motives and drivers of IT investment decisions by highlighting that these decisions are influenced by both economic considerations and legitimacy considerations such as conforming to institutional norms.
Date of Publication: Nov. 2009