Financial Impact of Moving to Cloud Computing

Abstract

This study explores the impact of cloud service adoption on the financial performance of the adopting firms. While the popularity of cloud computing continues to grow, disagreements abound regarding the costs and benefits of its adoption. Cloud service providers claim that the primary benefits are reduced cost and increased profitability due to improved operational efficiency. Paradoxically, accounting and finance professionals warn about potential negative impact on key financial reporting metrics including increased operating expenses and decreased earnings due to the added subscription fees. We analyze a sample of reported early cloud service adopters and compare their financial reporting metrics of interest to those from a control group of firms from the same industries over the period from 2005 to 2015 covering the first wave of large-scale adoption. We find that early adopters exhibit lower depreciation expenses and lower operating expenses than the average firm. Early adopters also exhibit higher market-to-book ratios, implying that investors expect comparably higher earnings growth, potentially due to the expected efficiencies achieved by using cloud computing.