ABSTRACT In this paper, we examine the consequences of data breaches for a breached company. We find the economic consequences are, on average, very small for breached companies. On average, breaches result in less than −0.3 percent cumulative abnormal returns in the short window around the breach disclosure. Except for a few catastrophic breaches, the nominal difference in cumulative abnormal returns between breach companies and the matched companies disappears within days after the breach. We also test whether data breaches affect future accounting measures of performance, audit and other fees, and future Sarbanes-Oxley Section 404 reports of material internal control weaknesses, but find no differences between breach and matched companies. Our results address the question why companies are not spending more to reduce breaches. We conclude by providing a few explanations of why there appears to be an effect at the economy-wide level, but no noticeable effect on individual company performance.

The chief information officer (CIO) is responsible for bridging the gap between two critical domains-technology and business, making the CIO's job uniquely different from other executives. As digital technologies become increasingly important to firms' competitive success, boards of directors and senior executives seek to align the CIO role with overall firm's objectives. Agency theory suggests that one way to create the alignment between an executive's efforts and firm performance is to implement appropriate equity compensation incentives (i.e., those resulting from stock and stock options) tying the executive's wealth to firm value. To date, research does not address what factors a firm should consider when designing CIO incentives and how these incentives influence firm performance. To address this major gap, we examine both the antecedents and performance consequences of CIO equity incentives. We assess organizational, environmental, and individual factors that influence CIO equity incentives and find that environmental and organizational factors are more important than individual CIO characteristics in the determination of CIO equity incentives. We also find that firms that create higher CIO equity incentives realize greater subsequent accounting and market performance. Our research contributes to the IT personnel literature by showing how firms can use compensation policies to leverage the CIO role to enhance overall business performance.

We examine the interrelationships between information technology spending, CEO equity compensation incentives, and firm value. We present two related pieces of evidence. First, we find that CEO equity incentives are associated with IT spending, suggesting that CEOs with higher incentives are more likely to invest in a risky asset such as IT. Second, we find that the association between IT spending and business value is stronger for firms that grant CEOs higher equity incentives. Our study contributes to the CEO compensation and IT governance literatures.

ABSTRACT This study examines whether the adoption in 2003 of FASB Interpretation No. 46/R (FIN 46), Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, changed the cost of capital for affected firms. Using comparative analysis on a broad sample of 11,719 firm-quarter observations for 1,389 firms during the period 1998 through 2005, we find evidence that FIN 46 significantly increased the cost of equity capital for firms with affected variable interest entities (VIEs), an increase of approximately 50 basis points relative to firms reporting no material effect from the standard. Further, firms consolidating these formerly off-balance sheet structures experienced the largest increase. Taken together, these results suggest that FIN 46 reduced the opportunity for firms to use off-balance sheet structures to artificially reduce their cost of capital, a matter of regulatory concern. Data Availability: All data are available from public sources.

This paper synthesizes recent empirical archival research investigating the link between information technology investment and business value. It examines (1) financial and nonfinancial measures to represent different elements of business value, (2) IT investment measures and links with firm performance, (3) IT and business complementarities that affect firm performance, and (4) the impact of business context and IT alignment with business strategy on resulting performance. The review of prior research is guided by a balanced scorecard framework that places IT in a business context and highlights the role of potential drivers and contextual factors that impact the association between IT and firm value. The paper concludes by proposing several broad avenues of future research that may be of particular interest to archival accounting information systems researchers.

ABSTRACT We use meta-analysis techniques to examine research choices that affect findings with respect to the return on IT investment. Recent research has established that IT investment is substantially related to firm financial performance. We find, however, that the relationship between IT investment and performance varies, depending on how both financial performance and IT investment are measured. Despite criticism of accounting measures as indicators of IT payoff, we find that the relationship is often stronger in studies that employ accounting measures rather than market measures of firm performance. This difference is driven by research that focuses on the process-level impacts of IT investment. Furthermore, the relationship is also stronger when IT investment is measured as IT strategy or spending, rather than IT capability. We discuss the practical implications of the results of our meta-analysis and suggest new directions for future theory development and research.

The resource-based view has been used in IT business value research to theorize and investigate the impact of unique IT capabilities on sustainable competitive advantages. Prior research has empirically documented a positive association between superior IT capabilities and firm performance. However, such analyses have focused on IT capabilities of firms in the early 1990s. In this study, we examine the impact of superior IT capabilities on firm performance over the 1988–2007 period, which allows us to consider the structural shifts in the return of IT capability over time. Our results suggest that firms with superior IT capabilities are able to attain higher firm performance levels until 1999. However, such performance advantage disappears in the post-1999 time period. We also find that a subset of firms that sustain high levels of IT capabilities during the period 1988 to 2007 continue to perform better than their peers. We conclude that managers are able to achieve superior firm performance if they are able to maintain high levels of IT capability over time.

ABSTRACT: Although information technology (hereafter, IT) expenditures represent an increasingly large investment for most corporations, firms are not required to disclose them separately in their financial statements. We hypothesize and find evidence that information about a firm’s IT expenditures helps explain its future performance as reflected in both accounting measures (residual income, earnings volatility) and market measures (stock price and long-run abnormal returns). In particular, we provide evidence of market mispricing and suggest the lack of firm-level annual IT expenditure disclosure as one potential reason for such mispricing. Altogether, the evidence presents a persuasive case that information about a firm’s IT expenditures is useful to stock market participants. The evidence we report is useful to managers and accounting policy makers contemplating the public disclosure of firm-level information about IT investments.

Human resource (HR) outsourcing research has primarily focused on the client with little attention paid to the service provider. As an initial step in understanding this important stakeholder in the HR outsourcing relationship, this study focuses on the financial performance of HR service firms that publicly announce outsourcing contracts. From the provider’s perspective, we investigate firm performance changes subsequent to outsourcing contract announcements, using a sample of 94 publicly available press releases. Our tests show that in the long term, small HR service providers contracted by large client firms experience improvements in operating profitability and margins.

In this chapter, we apply contemporary financial analysis methods to the measurement of information technology (IT) business value. IT contributes to business value by changing and enhancing business processes. Embedding IT in business processes or more effective uses of IT should show up in improved accounting measures of performance, which subsequently affect financial market measures of firm value. Thus, an assessment of IT's impact on firm performance must consider IT's effect on specific business processes and how those processes affect overall firm performance. First, we propose value chain analysis to assess the impact of IT investments on business processes and the selection of appropriate accounting-based process measures. Then, we describe the link between process performance measures and overall firm performance measures such as return on equity (ROE). ROE decomposition provides further insight into the contribution of IT to business value. The residual income model is then used to link ROE directly to firm value. The framework is demonstrated using thirty-two high-tech manufacturing firms that adopted IT-based supply chain management systems. Our empirical contribution is to illustrate how ROE decomposition methodology can be used to find value from IT investments. In particular, this methodology integrates disparate parts of the business value framework into a comprehensive model for empirical analysis of the performance changes around the adoption of new IT investments.

ABSTRACT: Using analytical and simulation techniques, we investigate the effect of inter-firm cost correlation, IT investment, and product cost accuracy on production decisions, and ultimately firm profitability in an imperfectly competitive market. Along with an unprecedented growth in investments in information technology (IT) over the last two decades, firms have made significant investments in IT to increase product cost accuracy. Yet, a variety of studies present mixed evidence as to the linkage between IT investment, product cost accuracy, and organizational performance. Further, while previous research has shown that IT may contribute to the improvement of organizational performance, contextual factors are important. We reexamine this issue in an imperfectly competitive market and product cost setting. We assert that knowledge of inter-firm cost correlation may be used to reduce the IT investment needed to achieve product cost accuracy and thereby optimize production and ultimately firm profit. To motivate our hypotheses, we develop and analyze an analytical model which incorporates IT investment, a costly, endogenous, imprecise product cost report, and inter-firm cost correlation. Using simulation techniques, we illustrate that production decisions informed by inter-firm cost correlation require less IT investment and result in higher firm profitability. Our emphasis on the initial design of product costing systems and the related IT requirements definition phase suggest that our result could be helpful to firm managers in establishing the optimal levels of IT investment and product cost accuracy in their specific product market setting.

ABSTRACT: In this paper we propose REA ontology-based simulation models to facilitate firms' strategic planning processes. Managers often must assess complex business environments, changing competitive forces, and uncertain futures, and then make significant resource allocation decisions. Traditional quantitative planning and budgeting techniques often fail to consider nonlinear relationships, discontinuities, and uncertainty. Qualitative techniques can lack rigor and perpetuate biases. Using simulation modeling technology could specifically address those concerns, but there are few if any general simulation models of integrated business processes to support strategic planning processes. Basing simulation models for enterprise planning on the REA framework, an established enterprise domain ontology, would facilitate reuse of and learning from these models in a variety of business contexts. An ontology-based planning model would allow managers to assess the consequences of alternative resource allocation decisions and determine appropriate performance indicators. To illustrate the concepts, we provide an example of how that model could be used to facilitate management planning.

We examine whether accounting-based fundamental analysis can predict long term market performance in a strategic alliance context. We first evaluate whether Mohanram's (2005) G-Score explains differences in long-term buy and hold returns following announcements that firms have formed strategic alliances. We show that the G-Score does help explain future market performance following alliance announcements; however, Mohanram's signals focus on the financial characteristics of individual firms and may fail to account fully for the intangible benefits of interfirm relationships. From information disclosed in the alliance announcements and other context-specific information, we develop an alliance score (A-Score) that alone and in conjunction with the G-Score explains differences in future returns. We also document that the market does not correctly predict long term performance for the firms participating in the alliances. These results suggest that prior research that focuses on the short term reaction to alliance announcements, may overstate the benefits of alliances.

For most firms, the information technology (IT) budget represents a major element in the overall firm budget, and IT budget decisions often have significant operational and strategic impacts on the business processes in the firm's value chain. In this paper we use a large unique data set to examine the extent to which IT budgets are affected by environmental, organizational, and technological circumstances. We find that our cross-sectional model explains substantial variance in IT budgets, which indicates that contingent environmental, organizational, and technological factors affect managers' budget decisions. We then examine the extent to which these IT budget levels are related to future firm performance, measured using both broad financial accounting measures, such as operating profit margins and return on assets, and market returns. We find that IT budget levels are positively associated with subsequent firm performance and shareholder returns. We further suggest that IT's aggregate effect on performance is a weighted average of two very different components: (1) context-driven IT budget levels, which reflect the effects of environmental, organization, and technological factors and the IT budgets resulting from them, and (2) idiosyncratic IT budget levels, which reflect the effect of any marginal firm-specific IT budget expenditures after controlling for these contextual factors. Both components are positively associated with performance, indicating that the specified contextual factors provide an incomplete explanation of firms' value-relevant IT expenditures. The current study contributes to the accounting information systems and management accounting literatures by assessing the causes and consequences of IT budgets.

In this paper, we propose extensions to the resource-event-agent (REA) framework to encompass the information requirements of the balanced scorecard and other management systems that incorporate nonfinancial measures. The REA conceptual accounting framework was designed to describe the information architecture related to an organization's economic activity (e.g., McCarthy 1982; Dunn et al. 2005). Geerts and McCarthy (2001b, 2002) extended the original REA to include value-chain level configurations, task-level configurations, and encompass a broader array of business economic phenomena. Yet, the REA framework remains closely tied to its accounting roots, with a focus on economic events and financial resources. A substantial number of organizations are adopting strategic management systems that include both financial and nonfinancial measures to overcome known limitations of systems based on traditional financial data alone (e.g., Said et al. 2003; Eccles et al. 2001; Ittner et al. 2003). We therefore examine whether the REA framework supports the information requirements of this broader domain and propose extensions to fill the gaps identified.

In this paper, we investigate the impact of both alliances and major customer relationships on operating risk, operating performance, and market returns. We examine the performance of 291 high-tech manufacturing firms that reported major customer relationships in accordance with FAS 14 (superseded by FAS 131 in 1997) and a subset of 128 firms that were also engaged in major alliance activity (research or marketing) over the period 1990 to 2002. Although managers suggest that major reasons to enter into partnerships or alliances are to reduce operating risk and increase performance, our paper is the first (to our knowledge) to examine directly this conjecture. Using a control group experimental design, we examine the performance impact of partnering relationships, and we find that impact often to be opposite managers' expectations. We employ several proxies for operating risk and find that risk generally increased during major customer relationships and research alliances. Operating performance decreases during research alliances as well as after major customer relationships. Finally, we find that the market penalizes firms that discontinue major customer relationship but rewards firms participating in research alliances.

We extend the existing research on managerial incentives and operating performance measurement by integrating the market impact of the manager's discretionary financial and disclosures decisions to stock price performance in compensation contracts. There is evidence that managers manipulate accounting numbers to mitigate the consequences of decreasing operating performance and negative compensation effects. We argue that managers may also use discretionary financial decisions to meet market expectations and avoid compromising internal control systems. We focus on the financial decision to repurchase stock, given the prevalence and documented positive market impact of that activity. While controlling for other factors associated with stock repurchases, we examine the likelihood that firms with decreasing operating performance use stock repurchases to help meet analyst expectations to avoid stock price decreases. We find that managers that repurchase stock are also likely to benefit from higher stock prices, since they exercise more stock options in the year following the stock repurchase. We also examine whether firms that use stock repurchases use MD&A disclosures to manage expectations downward. We find that rather than managing expectations downward, managers are likely to provide more optimistic disclosures, especially when planning stock repurchases. Our results suggest that the current emphasis on stock price performance in management's compensation contracts may not eliminate managerial opportunism, given the market impact of the manager's discretionary financial and disclosures decisions.

Incorporating the pricing dynamics of external jet fuel markets, this paper investigates the regulatory impact of Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 101 on discretionary revenue accrual behavior, profitability and the firm's cost of capital in the airline industry. Prior to SAB 101, we posit that airlines could use GAAP flexibility to manage revenues to compensate for fuel price shocks on profitability and the firm's cost of capital. While the regulatory motivation for SAB 101 was to restrain misleading revenue management, we argue that after SAB 101, the potential for additional SEC scrutiny caused airlines to be more conservative in their air traffic liability-revenue accruals leading to increase in airline firms' costs of capital for the airlines making more conservative accruals. First, we find that prior to SAB 101, the air traffic liability account is significantly inversely related to both airline profitability and fuel prices. We then find that an unexpected change in the air traffic revenue liability account affects unexpected profitability. After SAB 101, the relation between profitability and changes in the air traffic revenue liability changed dramatically even after controlling for work disruptions and other economic factors related to the profitability. At the same time, average airlines' cost of capital as measured by bid-ask spreads increased markedly. This increase in the airlines' cost of capital suggests that the SEC intended revenue regulation guidance that did not change GAAP, did impose capital markets consequences on the airline industry.

Recent research in accounting advocates nonfinancial measures of company performance, such as customer satisfaction and loyalty, as useful indicators of aspects of firm performance. But what are the drivers of customer satisfaction and loyalty? We provide an integrated causal model of company performance in the personal computer (PC) industry that simultaneously tests links between product value attributes resulting from business process performance, customer loyalty, and financial outcomes. Our results extend prior accounting research (e.g., Banker et al. 2000; Ittner and Larcker 1998) in two directions: (1) by explaining the determinants of customer loyalty, and (2) by clarifying the relation between customer loyalty and measures of financial performance. We report that product value attributes directly and differentially impact levels of customer loyalty as well as prevailing average selling prices. Furthermore, measures of customer loyalty explain levels of relative revenue growth and profitability, and relatively high customer loyalty engenders a competitive advantage in the PC industry.

Clinical GeneticsVolume 59, Issue 1 p. 25-27 Grebe syndrome in Vietnamese sisters: not Agent Orange AE Lin, AE Lin Teratology Program, The Brigham and Women's Hospital, Old PBBH-B501, 75 Francis St., Boston, MASearch for more papers by this authorPG Wheeler, PG Wheeler Division of Genetics, Department of Pediatrics, The Floating Hospital for Children, New England Medical Center, #394, 750 Washington St., Boston, MA 02111, USASearch for more papers by this authorR Smith, R Smith Division of Genetics, Department of Pediatrics, The Floating Hospital for Children, New England Medical Center, #394, 750 Washington St., Boston, MA 02111, USASearch for more papers by this author AE Lin, AE Lin Teratology Program, The Brigham and Women's Hospital, Old PBBH-B501, 75 Francis St., Boston, MASearch for more papers by this authorPG Wheeler, PG Wheeler Division of Genetics, Department of Pediatrics, The Floating Hospital for Children, New England Medical Center, #394, 750 Washington St., Boston, MA 02111, USASearch for more papers by this authorR Smith, R Smith Division of Genetics, Department of Pediatrics, The Floating Hospital for Children, New England Medical Center, #394, 750 Washington St., Boston, MA 02111, USASearch for more papers by this author First published: 20 December 2001 https://doi.org/10.1034/j.1399-0004.2001.590104.xCitations: 3 Corresponding author: AE Lin, Teratology Program, The Brigham and Women's Hospital, Old PBBH-B501, 75 Francis St., Boston, MA 02115, USA. Tel: +1 617-732-4268; fax: +1 617-264-6803; e-mail: lin.angela@mgh.harvard.edu Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume59, Issue1January 2001Pages 25-27 RelatedInformation