Firm Size and IT Investment: Beyond Simple Averages
نویسندگان
چکیده
We attempt to gain a better perspective on evolving firm-size in the past twenty years across industries by combining Brynjolfsson, Malone, Gurbaxani, and Kambil (1994, BMGK)’s empirical framework of measuring the effect of coordination cost reduction due to information technology (IT) investment, and Kumar, Rajan, and Zingales (2001)’s synopsis of theories of the firm. We find that although in general BMGK’s result holds for new firm data from COMPUSTAT, the firm size of professional service sector grows as IT investment increases. The paper’s potential contributions to empirical methods include (1) a different focus on the measurement of firm size by utilizing weighted average employee-measure of firm size adopted by KRZ’s work to replicate BMGK’s findings with a new dataset, and (2) refinement of KRZ’s weighted average employeemeasure of firm size using entropy partition techniques from the machine learning literature, to fully account for the effect of larger firms within each industry.
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