Does new technology adoption pay? Electronic switching patterns and firm-level performance in US telecommunications

Abstract

This paper investigates the impact of new switching technology adoption on firms' performance in the US telecommunications industry. The sample evaluated consists of 40 of the key firms in the local operating sector. Performance is first investigated cross-sectionally for 1987, and then changes in performance between 1978 and 1987 are assessed with respect to changes in technology composition that have taken place during that period. Performance at the level of the firm is measured using data envelopment analysis (DEA), with DEA being used to compute input-conserving and output-augmenting measures of performance. These measures are then regressed against a set of variables capturing the impact of new technology, as well as controlling for other factors. Cross-sectionally, it is found that those firms which have adopted a greater proportion of electronic switching display significantly superior efficiency in resource utilization, though the impact of new technology on output-augmentation is weak. Similar, and stronger, patterns are found when changes in performance over time is evaluated, and new technology adoption, which is generally expected to improve firm-level performance, has had a strong positive impact on firms in the US telecommunications industry.