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An important theme in information systems research is that organizational factors are critical to the success of computer investments. This paper provides broad statistical evidence for this proposition. For our analysis, we have compiled a unique data set of over 1,000 firms which includes the total stock market value of firms, their installed base of computer capital, detailed measures of the organizational structures, and a battery of other factors. Using a theoretically-grounded model, we find that a one dollar increase in a firm’s installed computer capital is associated with an increase in the firm’s stock market valuation of over five dollars, while controlling for all other tangible assets. For this to be equilibrium, the financial markets must believe that each dollar of computer capital is accompanied by an average of over four dollars of intangible assets. We then identify a candidate for these intangible assets: certain organizational characteristics, involving the structure of decisionmaking and the nature of job design, are highly correlated with computer investments. While these organizational characteristics do not appear on a firm’s balance sheet, we find that they lead to higher stock market valuations. Strikingly, firms that combine higher computer investments with these organizational characteristics have disproportionate increases in their market valuations. Our findings are quite robust to a variety of alternative models and the results are generally strengthened when we control for potential reverse causality. We conclude that the contribution of computers to a firm’s market value is increased when they are combined with certain intangible assets, specifically including the cluster of organizational changes that we have identified.

Intangible assets: how the interaction of computers and organizational structure affects stock market valuations