The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective

Jengchung V. Chen, Bo-chiuan Su, and Timothy M. Hiele
International Journal of Electronic Commerce,
Volume 21, Number 1, 2016-17, pp. 103-131.


The primary objective of this study is to examine the influence of information technology (IT) on organizational coordination costs using the theoretical lens of transaction cost economics. In doing so, the study addresses the following research questions: Does IT matter? How and why does IT matter to firms? How does coordination cost mediate the relationship between IT spending and firm productivity, and how does it influence IT spending and firm size when considering the information product industries (IPI) and the physical product industries (PPI)? To address these research questions, we use IT spending, coordination costs, firm size, and firm productivity with firm-level data, using Information Week and the Compustat data set in the United States, from 2011 to 2013. A SmartPLS path analysis was used to test the research hypotheses. The results show that use of the firm’s IT spending decreases coordination costs. Likewise, the results show that IT spending also decreases firm size. On the other hand, the results also show that IT spending does not significantly improve a firm’s productivity. Furthermore, the results indicate strong evidence that coordination costs act as a mediator between IT spending and firm size in IPI firms. Coordination costs also mediate the relationship between IT spending and firm productivity in IPI firms. Overall, this study sheds light on the importance of the impact of IT on reducing coordination costs as well as on firm size and firm productivity. This must be especially considered in regard to interorganizational coordination.

Key Words and Phrases: Coordination costs, firm productivity, firm size, interorganizational coordination.