Vincent J. Shea

Daytona Dreams Restaurant: Linking Accounting Systems with Business Valuation

ABSTRACT: A problem encountered in accounting information systems (AIS) education is that students sometimes do not understand how organizational risks affect firm value. This case presents a privately held restaurant that is currently under acquisition consideration by a publicly traded restaurant group that follows internal control guidance as stipulated by the Committee of Sponsoring Organizations (COSO) guidelines. The objective of this case is to present students with a causal link among (1) internal control weaknesses of a restaurant, (2) financial statement assertions, and (3) management decisions that can impact firm value. Students must identify and translate control weaknesses into the cases business valuation decision. The case is appropriate for undergraduate and graduate AIS and audit classes.

Riding the waves of technology through the decades: The relation between industry-level information technology intensity and the cost of equity capital

This paper examines the effect that information technology (IT) investments have on the industry cost of equity capital. We find that industry IT intensity, defined as the relative amount of IT investment to total fixed asset expenditures, is negatively related to the industry cost of equity capital. These results indicate that industries with higher levels of IT investment have lower cost of equity capital. We also find that the relation between IT intensity and cost of equity capital changes over time. Initially, investors viewed IT investments as risky ventures and demanded higher levels of cost of equity (or higher return on their investment) for those industries investing in IT. However, beginning in the 1980s, as IT became more reliable, more cost effective, and had the ability to transform businesses, investors viewed IT Intensity as a positive business strategy with less associated risks and reduced their required cost of equity capital (or lower return on their investment). Extrapolating from our industry results, IT investments allow firms to potentially raise capital at a lower price so they have more assets to employ, indicating that IT investments can be a key factor for business success.