Information Technology And Firms' Horizontal Boundaries

Information technology (IT), which develops from the 1950s, has been widely used in themoderu enterprise's management. The application of information technology can create newefficiencies and opportunities, while decreasing transaction costs related to communication andcoordination, thus impact organization structure. An important manifestation of this restructuringis the change in firms' horizontal boundaries.By collecting data of 138 domestic listed companies from 2001 to 2005, from the impact ofthe application of information technology on firm's horizontal boundaries and the impact ofchange in firm's horizontal boundaries on the needs of IT, this paper do an exhaustive study onthe relationship between IT and firm's horizontal boundaries. Opposite with the overseas'research, our results suggest that the level of IT investment is negatively related to the degree offirm diversification. Compared to related diversification, unrelated diversification has moreimpact on the needs of information technology. We further find that the impact of informationtechnology on firm's horizontal boundaries doesn't work in the same year; the application ofinformation technology has a time lag effect.