Impact of Information Technology in the Bank Sector

Topics: Auditing, Empirical, Statistical hypothesis testing Pages: 26 (8093 words) Published: August 15, 2013
Journal of Information Systems Vol. 16, No. 2 Fall 2002 pp. 209–222

Impact of Information Technology on Public Accounting Firm Productivity Rajiv D. Banker Hsihui Chang The University of Texas at Dallas Yi-ching Kao University of Wisconsin–Milwaukee ABSTRACT: In recent years, information technology (IT) has played a critical role in the services provided by the public accounting industry. However, no empirical research has evaluated the impact of IT on public accounting firms. This study focuses on five offices of an international public accounting firm that recently made large IT investments, primarily in audit software and knowledge-sharing applications. Both qualitative and quantitative information from the research site are analyzed to estimate the change in productivity following the implementation of IT. The results from both regression analysis and Data Envelopment Analysis (DEA) indicate significant productivity gains following IT implementation, documenting the value impact of IT in a public accounting firm. Keywords: public accounting; information technology (IT); IT productivity; IT adoption; data envelopment analysis. Data Availability: The confidentiality agreement with the firm that provided the data for this study precludes revealing its identity and disseminating detailed data without its written consent. I. INTRODUCTION dvances in information technology (IT) have transformed many firms in professional services industries, but perhaps none as much as those in the public accounting industry. Once a slowpaced and conservative industry, public accounting underwent tremendous changes at the turn of the millennium, sparked largely by the rapid changes in its IT environment (Elliott 2000). Audit software and knowledge-sharing applications are two crucial components of these changes. Automation of audit tasks and use of specialized audit software has substituted IT for labor and changed the structure of audit teams. Equally important is the use of advanced systems to share knowledge bases across different parts of the organization that has enabled professional services firms to leverage their human resources more effectively (Gogan et al. 1995). With rapid advances in IT, numerous articles have appeared in practitioner-oriented accounting journals that discuss how to invest in IT to keep up with the current technology (Smith 1997; Zarowin 1998). To justify an IT investment, managers need to understand the potential benefits resulting from the investment. Although there is a general perception that IT investments by public accounting firms can improve firms’ productivity (Lee and Arentzoff 1991), the impact of IT on firm performance is not directly observable. Public accounting firms need to understand how the technology can transform their work and whether such transformation will ultimately lead to productivity gain. While the recent IT research literature documents a positive marginal contribution of incremental IT expenditure using cross-sectional

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analysis across several firms (e.g., Brynjolfsson and Hitt 1995; Lichtenberg 1995), empirical evidence at the firm level has not been reported. Longitudinal analysis before and after IT implementation is important to support a causality argument leading from IT deployment to improvement in the firm’s productivity. This is especially of interest in a public accounting firm where information utilization is the core competence. The objective of this study is to evaluate whether IT implementation has an impact on the productivity of a public accounting firm. We identified a large international public accounting firm as our research site. Our research site has recently made a large investment in IT, focusing primarily on audit software and knowledge-sharing applications. With access to the firm’s senior management, we obtained both qualitative and quantitative data from five offices of the firm for our...

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