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The Institutionalization of IT Budgeting in Firms: Investigating Sources of Influence
Abstract
Organizations around the world invest billions of dollars each year in information technology (IT) related products and services. What are the factors influencing each individual firm’s investment budget decisions? Limited empirical results derived from firm-level data suggest that internal affordability, such as previous IT budget levels, sales, profitability, and size, are significant sources of influence. In this study, we introduce the perspective of “external institutional influence” for examining corporate IT budgeting processes, in addition to the internal affordability perspective. Using firm-level IT and financial data of publicly traded companies in the financial sector, we show that the two most significant sources of influence on corporate IT budgets are the firm’s IT spending level of the previous year (internal) and the IT spending level of the perceived industry leaders (external). We posit that as IT becomes pervasive in all aspects of business operations and all sectors of the economy, IT budgeting processes have been, at least partially, institutionalized. The implications of this institutionalization are discussed and future research directions are suggested.
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