Information Technology Issues for a New Economy: Three Essays on Electronic Commerce and Information Technology Outsourcing a Thesis Submitted to the Faculty of the Graduate School of the University of Minnesota By

The thesis consists of three essays on issues important to the management of information technology in organizations. The first focuses on outsourcing. The second and third examine the stock market effects of decisions to initiate electronic commerce. The first essay compares five different contracting theories from economics to determine which best describes information technology outsourcing. The method employed is a detailed study of the text of eight contracts for information technology outsourcing. The results show that the property rights contracting theory offers the best explanation for such contracts and transaction costs economics also assists in explaining the terms of the contracts. Principalagent models do not seem to be represented in these contracts. The second essay examines how capital markets react to news of electronic commerce initiatives. Using data from the last quarter of 1998, 251 electronic commerce announcements are classified into either business-to-business or business-to-consumer initiatives, and either digital or tangible initiatives; while firms are classified as being either pure-play Internet firms or brick-and-mortar firms. The event study methodology is used to determine how different types of initiatives generate market value for firms. The findings indicate that initiatives, in aggregate, generate market wealth for shareholders; net firms and traditional firms generate similar levels of wealth; business-to-consumer initiatives generate greater wealth than business-to-business initiatives; and initiatives concerning tangible products generate more market wealth for shareholders than those focused on digital production. The third essay extends the second by examining the stability of market perceptions of EC initiatives. It applies both the short run event study and long run event study methodologies to 2097 electronic commerce announcements in 1999 and 2000. The findings indicate that market perceptions of the value of an initiative in the short run are not correlated with long run market perceptions. Kernel estimation is applied to the short run returns to generate a graphical representation of changes in market perceptions. The analysis finds that market perceptions are highly unstable over time. This suggests research applying the event study methodology to electronic commerce should be interpreted cautiously as the results are highly sensitive to the period of analysis.