Asset characteristics and the impact of it on firm scope and performance

The literature in IS suggests that IT affects firms' vertical and horizontal boundaries. This research examines how the nature of firms' assets and information technology interact to influence the level of vertical integration and horizontal diversification. Using panel data from 2001 to 2004, the analysis suggests that the negative relationship between IT and vertical integration identified in the literature is attributable to IT's role in coordinating firms' tangible assets. On the other hand, the positive relationship between IT and firms' horizontal diversification is attributable to IT's role in leveraging a firm's intangible assets across different businesses. The analysis also indicates that for less vertically integrated firms, IT increases the contribution of tangible assets to performance. And for more diversified firms, IT may increase the contribution of intangible assets to performance. The general implication of this research is that firms with more tangible assets may use information technology to become more vertically specialized, whereas firms with more intangible assets may deploy information technology to become more horizontally diversified.