Determinants of Budgeted IT Expenditures

IT expenditures vary across firms and across industries, however very little empirical research has investigated the factors influencing the level of these expenditures. The object of this paper is to present theory and evidence of the determinants of corporate IT budgets. Using InformationWeek data, we find that budgeted IT expenditures are set by a combination of benchmarking, ability to finance the expenditures as well as internal and external complexity factors. More specifically, a significant portion of the IT budget can be explained by benchmarking. In addition, IT budgets are significantly influenced by the strategic role that IT plays in an industry, and by the level of complexity arising from industry and firm-level factors. The level of concentration within the industry has a significant impact on IT budgets. A number of firm-level factors also affect IT budgets, including prior IT investments, resource availability, business dynamism, and the level of diversification. This suggests that managers should adjust for these firm and industry-level factors when comparing their IT spending to selected benchmark firms.