How Does Bond Market View IT Investments of Firms? An Empirical Analysis of Bond Ratings and Yield Spread

摘要

This study investigates the business value of information technology (IT) in terms of performance in bond markets, which constitute the single largest source for firms' financing. We evaluate risk-adjusted benefits of IT investments in the bond market in the United States over the 1995-2002 period. We find a significant association between a firm's IT intensity and bond ratings at issuance. The results also indicate that the impact of IT on the cost of debt is different across industries. IT investments have a favorable influence on the cost of debt in automate and informate industries but not in transform industries. This finding from the bond markets differs from that in prior equity market findings which report higher returns to IT investments in transform industries. These findings suggest that bondholders and shareholders have different perspectives toward IT investments.