RESEARCHERS: Sanjeev Dewan, Fei Ren, Vijay Gurbaxani


This is a three-year study funded by the National Science Foundation. Prior studies of returns to IT investment did not incorporate the role of risk into the analysis, which is recognized as being correlated with returns. That is, higher risk investments are typically associated with a higher expected return. Correspondingly, the returns to IT investment should be lower if risk is incorporated into the analysis. This project analyzes the impact of IT risk on the cost of IT capital, and on the productivity and market value of firms. The specific objectives are to incorporate IT risk into existing empirical frameworks for characterizing IT returns, generate empirical metrics of IT risk at the firm and industry levels, and assess the risk-adjusted return on IT investment. The impact of IT risk is analyzed at two levels of aggregation, at the level of the firm and at the project level, consistent with the existing literature on the returns on IT investment. The firm-level analysis has been completed. The results show that IT investments are riskier than other forms of capital investment, and the returns to IT investments are substantially lower when risk is incorporated into the analysis. Current work is focused on measuring the role and impact of risk at the project level. The results of this research have appeared in Information Systems Research and Management Science.