Impact of information technology capability on financial performance during the period of economic downturn: the case of Chinese listed companies

Abstract

Several earlier studies validate the positive impact of information technology (IT) capability on firm performance during economic expansion in developed countries. Given sustained IT investments and rapid adoption of various IT in developing countries (e.g. China) in the 2000s, there is a need for new research to test whether prior findings still hold true with up-to-date data from a period of economic downturn in developing countries. Thus, this study attempted to reexamine the linkage between IT capability and financial performance during recent financial crisis in 2008, especially in China context. Our results show that during the period of financial crisis, Chinese firms with superior IT capability tend to outperform a sample of control firms on average profit ratios but not on cost ratios, even after adjusting for prior performance. We also find that the profit performance effects of IT capability can be sustained over a long period of economic downturn. This study contributes to research by extending a different context (i.e. China) from developed countries with new data from economic downturn and providing new finding to reconcile prior research.