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Information Technology Effects on Firm Performance as Measured by Tobin's q

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Author Info

  • Anandhi S. Bharadwaj

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

  • Sundar G. Bharadwaj

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

  • Benn R. Konsynski

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

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    Abstract

    Despite increasing anecdotal evidence that information technology (IT) assets contribute to firm performance and future growth potential of firms, the empirical results relating IT investments to firm performance measures have been equivocal. However, the bulk of the studies have relied exclusively on accounting-based measures of firm performance, which largely tend to ignore IT's contribution to performance dimensions such as strategic flexibility and intangible value. In this paper, we use Tobin's q, a financial market-based measure of firm performance and examine the association between IT investments and firm q values, after controlling for a variety of industry factors and firm-specific variables. The results based on data from 1988--1993 indicate that, in all of the five years, the inclusion of the IT expenditure variable in the model increased the variance explained in q significantly. The results also showed that, for all five years, IT investments had a significantly positive association with Tobin's q value. Our results are consistent with the notion that IT contributes to a firm's future performance potential, which a forward-looking measure such as the q is better able to capture.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.7.1008
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 7 (July)
    Pages: 1008-1024

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:7:p:1008-1024

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    Related research

    Keywords: information technology and firm performance; business value of information technology; information technology and Tobin's q ratio; information technology and intangible value;

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    Cited by:
    1. Lin, Winston T. & Chiang, Chung-Yean, 2011. "The impacts of country characteristics upon the value of information technology as measured by productive efficiency," International Journal of Production Economics, Elsevier, vol. 132(1), pages 13-33, July.
    2. Chari, Murali D.R. & Devaraj, Sarv & David, Parthiban, 2007. "International diversification and firm performance: Role of information technology investments," Journal of World Business, Elsevier, vol. 42(2), pages 184-197, June.
    3. Swafford, Patricia M. & Ghosh, Soumen & Murthy, Nagesh, 2008. "Achieving supply chain agility through IT integration and flexibility," International Journal of Production Economics, Elsevier, vol. 116(2), pages 288-297, December.
    4. Kim, Sung Min & Mahoney, Joseph T., 2008. "Resource Co-specialization, Firm Growth, and Organizational Performance: An Empirical Analysis of Organizational Restructuring and IT Implementations," Working Papers 08-0107, University of Illinois at Urbana-Champaign, College of Business.
    5. Moses Acquaah, 2003. "Corporate Management, Industry Competition and the Sustainability of Firm Abnormal Profitability," Journal of Management and Governance, Springer, vol. 7(1), pages 57-85, March.
    6. Guido Schryen, 2010. "Preserving Knowledge on IS Business Value," Business & Information Systems Engineering, Springer, vol. 2(4), pages 233-244, August.
    7. Marina A. Oskolkova & Petr A. Parshakov, 2013. "Company intangibles: creation vs absorption," HSE Working papers WP BRP 25/FE/2013, National Research University Higher School of Economics.
    8. Mouri, Nacef & Sarkar, M.B. & Frye, Melissa, 2012. "Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty," Journal of Business Venturing, Elsevier, vol. 27(3), pages 355-371.
    9. Chen, Yueh H. & Lin, Winston T., 2009. "Analyzing the relationships between information technology, inputs substitution and national characteristics based on CES stochastic frontier production models," International Journal of Production Economics, Elsevier, vol. 120(2), pages 552-569, August.
    10. Sriram, Ven & Stump, Rodney, 2004. "Information technology investments in purchasing: an empirical investigation of communications, relationship and performance outcomes," Omega, Elsevier, vol. 32(1), pages 41-55, February.
    11. Juul Andersen, Torben, 2005. "The performance effect of computer-mediated communication and decentralized strategic decision making," Journal of Business Research, Elsevier, vol. 58(8), pages 1059-1067, August.
    12. Alfredo Martín-Oliver & Vicente Salas-Fumas, 2007. "How do intangible assets create economic value? an application to banks," Banco de Espa�a Working Papers 0730, Banco de Espa�a.
    13. Cannon, Alan R., 2008. "Inventory improvement and financial performance," International Journal of Production Economics, Elsevier, vol. 115(2), pages 581-593, October.
    14. Tzeng, Shiou-Fen & Chen, Wun-Hwa & Pai, Fan-Yun, 2008. "Evaluating the business value of RFID: Evidence from five case studies," International Journal of Production Economics, Elsevier, vol. 112(2), pages 601-613, April.
    15. Chen-Lung Chin & Picheng Lee & Hsin-Yi Chi & Asokan Anandarajan, 2006. "Patent Citation, R&D Spillover, and Tobin's Q: Evidence from Taiwan Semiconductor Industry," Review of Quantitative Finance and Accounting, Springer, vol. 26(1), pages 67-84, February.
    16. Li, Gang & Yang, Hongjiao & Sun, Linyan & Sohal, Amrik S., 2009. "The impact of IT implementation on supply chain integration and performance," International Journal of Production Economics, Elsevier, vol. 120(1), pages 125-138, July.

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