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...accounting firm that recently made large if 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 (if); if 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
Advances 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 slow-paced and conservative industry, public accounting underwent tremendous changes at the turn of the millennium, sparked largely by the rapid changes in its if 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 if to keep up with the current technology (Smith 1997; Zarowin 1998). To justify an if investment, managers need to understand the potential benefits resulting from the investment. Although there is a general perception that if 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 if expenditure using cross-sectional 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 analysis. We interviewed accounting professionals at different levels to explore how these IT changes might impact the firm's audit service production. Then we analyzed quantitative data on the firm's service output and input consumption to test statistically whether there was productivity improvement following the IT changes in the firm.
Since our research site was in a relatively stable business environment and followed consistent business practices, it serves as a quasi-natural experimental (Meyer 1995) test-bed to evaluate the effects of a new IT program on productivity improvement. The firm's recent large investment in IT was an abrupt and permanent intervention in the time series of the firm's production data following the implementation of the new IT program. Our empirical results from both regression analysis and Data Envelopment Analysis (DEA) indicated significant improvement in the firm's productivity following the implementation of its new IT program, documenting the value impact of IT investment in public accounting firms.
The rest of the paper is organized as follows. In Section II, we describe the research motivation and background. In Section III, we discuss how our qualitative analysis leads to the research question for quantitative examination. In Section IV, we describe the two estimation models we use to evaluate changes in firm productivity and present our empirical results. In Section V, we conclude with a discussion of the implication of our results.
II. RESEARCH BACKGROUND
Research Motivation
To understand the nature of the IT impact on firm performance, we must consider the fit between the characteristics of the IT and the users' tasks (Goodhue and Thompson 1995). Since the primary responsibility of professionals in public accounting firms involves information-intensive activities (Auditing Concepts Committee [ACC] 1972) such as gathering, organizing, processing, evaluating, and presenting data, the use of IT is likely to improve the productivity of accounting professionals (Pinsonneault and Rivard 1998). Teamwork is critical in a public accounting firm as audit engagements are performed by teams composed of professionals at different ranks. Therefore, the use of groupware technology is also expected to improve work collaboration and communication within teams, and thus enhance their productivity (Ellis et al. 1991; Vandenbosch and Ginzberg 1996-1997).
Although previous IT research has examined the impact of IT investments on firm performance in different industries such as manufacturing (Barua et al. 1995), banking (Parsons et al. 1993), insurance (Francalanci and Galal 1998), healthcare (Menon et al. 2000), and retailing (Reardon et al. 1996), empirical research has not examined the professional services industry, such as public accounting firms, in which information and knowledge work play a prominent role. Hence, examining the impact of IT implementation on public accounting firm productivity is of considerable interest to both academic inquiry and practice.
Exploration of the productivity impact of IT implementation requires the recognition that the conversion from IT expenditure to business performance enhancement is a longitudinal process (Soh and Markus 1995). Proper IT management is essential to convert IT expenditure to IT assets. Appropriate use of IT assets generates organizational innovations and redesigned business processes, and favorable competitive dynamics enable improved organizational performance due to these organizational innovations. Davern and Kauffman (2000) extended this IT conversion process sequence to emphasize the importance of considering the impact of IT planning and selection activities on realized IT value.
A few field studies have explored the longitudinal IT conversion process to identify the factors at different points of the process that determine the success of IT adoption. Venkatesh and Davis (2000) found that at different time points before and after IT implementation, factors such as subjective norm, voluntariness, job relevance, and output quality consistently influence users' perceptions about the usefulness of the systems. Bergeron and Raymond (1997) reported that organizational support, implementation process, and control procedures impacted the initial realization of benefits from Electronic Data Interexchange (EDI) adoption, but three years later, only organizational support and control procedures remained significant.
While these studies have examined factors that may impact the IT value creation process, they did not...
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