Y2K spending by entrepreneurial firms

While public debate leading up to year 2000 focused on the potential negative consequences of Y2K, some writers recognized that Y2K could set in motion a period of intense strategic investment in information technology (IT) of the type characterized by Schumpeter [Capitalism, Socialism, and Democracy, third ed., Harper and Row, New York, 1950, p. 81] as creative destruction. In performing the study presented here, we formulated hypotheses, based on Schumpeter's [The Theory of Economic Development, Harvard University, Cambridge, 1934, p. 57] theory of economic development, about the characteristics of firms that would have responded most aggressively to Y2K and tested these hypotheses using data obtained from Y2K disclosures made in filings with the Securities and Exchange Commission (SEC). Our findings provide striking evidence that Y2K spending increased with economic factors that are characteristic of entrepreneurial firms and with the competitiveness of the firms' industries. This observation of systematic Y2K spending patterns suggests that accounting disclosures of IT spending are informative and illustrates the potential power of economic catalysts for change, particularly with respect to IT resources.