Information Systems Expenditures and Firm Value: Further Evidence from Financial Services Industry

Abstract

This chapter examines the value relevance of disclosures about IT expenditures. Using information about the amount of consulting fees paid to the incumbent auditor by their clients for designing and developing a financial information system (FIS), the study examines whether there is an association between market value of equity and IT expenditures. Since the financial services industry is an intensive user of IT and often relies on IT as a source of competitive advantage, the study uses a sample of firms from the financial services sector. This chapter contributes to our understanding of the importance of disclosures about IT expenditures in assessment of firm value. The results show positive association between investments in IT and market value of equity. Overall, the findings support the notion that investors perceive investments in IT as value-relevant.