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Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Introduction and executive summary
Introduction and executive summary
This issue of Managerial Finance examines various issues on the role of computers in business financial decisions. Computers have become an important component of our daily lives, both at work and at home, by providing assistance in our regular daily activities. That is, computers were designed to help us gather and process data more quickly with the intended result of us making informed decisions more quickly. Accordingly, my expectation is that computers should not alter the decision-making process, but should provide for more informed decisions. However, introducing computers to the decision-making process may have unintended effects on our decision-making process.
We examine the role of computers in business financial decisions. The five papers in this issue cover the following topics: two papers related to capital budgeting, one paper on debt availability, one paper on internet IPOs, and one paper on using instant messaging to manage people in remote locations. This set of paper mirror the primary decisions a business has to make, ie.: what assets to acquire, how to pay for those assets, and how to manage its people.
The five papers for this issue are listed below with each title followed by a brief summary of the paper:
The hidden financial costs of ERP software. Strategic planning and implementation requires flexibility. The paper identifies and discusses a serious threat to the flexibility of firms and ultimately to the value of the firm. The threat is enterprise resource planning systems. As configured, these systems create major distortions in the corporate decision-making process by raising the cost of making value-enhancing decisions and negatively influencing the overall capital-budgeting process.
Y2K: is there a lesson in the bug that did not bite?. This paper examines the market's reaction to Y2K progress by banks during 1999 and finds no market reaction to bank progress on solving Y2K. The results suggest that required capital projects are best purchased from experts unless new products will result from the required project.
The role of computer usage in the availability of credit for small business. The purpose of this paper is to provide a descriptive analysis of the role of computer usage in determining the credit score for small business owners. Our results suggest that computer usage with one puzzling exception has no affect whatsoever in the determination of credit policy by financial service providers to these firms. Rather, it appears that standard credit analysis and risk measures dominate the decision-making process.
Internet auctions as a means of issuing financial securities: the case of the OpenIPO. The investment bank WR Hambrecht+CO (Hambrecht) takes companies public using its proprietary OpenIPO, an internet-based, online auction process that offers equal access to any investor with a Hambrecht brokerage account. The purpose of this paper is to analyze the OpenIPO process, vis-à-vis traditional bookbuilding, and evaluate the suitability of the OpenIPO for various types of companies, market conditions, and assets. We conclude that the OpenIPO's main advantage is that it precludes many of the abuses recently observed in investment banking; however, it is not well suited for complex businesses that are either difficult to value or far removed from the public eye. Thus, we foresee the OpenIPO as supplementing, rather than supplanting, the traditional bookbuilding method.
Using instant messenger in the finance course. In this paper, we investigate the benefits of using instant messaging (IM) in finance courses. We discuss the advantages and disadvantages of using IM, how to implement IM, and provide personal examples of using IM in our classes. Almost 100 per cent of the students who use IM for class feel that it is useful. Through its increasing usage, IM has solved many communication problems in corporations.
The first two papers point out some unintended consequences of using computers on the asset side of a business's balance sheet. The first paper shows that investment in ERP systems can inhibit changes and thus interfere with the selection of value adding projects. The second paper examines the Y2K problem in computer software where software needs changes to handle the switch from 1900 to 2000. The authors examine this change for banks, so the investment in the changes is not a new product for the banks, but instead, simply allows banks to continue business, as usual. The authors find no market reaction to banks' level of preparation for Y2K. The authors suggest that banks would have been better off to buy the solution to the problem than develop the solution internally.
The third and fourth papers deal with financing a business's assets. The third paper examines whether computer usage by small businesses affects their access to debt. The question is whether computer usage proxies for qualities that lenders find desirable in their business customers. The authors find that computer usage does not alter lender credit decisions. The fourth paper examines a new internet-based IPO process for raising equity capital for businesses. The authors examine whether this new process could replace the existing process that is fraught with conflicts of interest and the potential of insider dealings. The authors conclude that the new internet IPO process is best suited as a supplement to the current process rather than as a replacement for the current process.
The fifth paper moves away from issues related to assets, debt, and equity to look at management of people. The authors examine the use of IM in finance courses. They find that it improves communication outside of class hours and therefore suggest that businesses could improve communication among employees in different location through the use of IM.
The conclusion I draw from these five papers is that computers are tool to enhance how a business operates. Computers do not change the core operations of a business nor how those operations are funded, but carry the caveat that major investments in computer hardware and software can influence how a business responds to opportunities and problems.
Drew B. Winters