Information technology capability and firm performance in the era of Big Data analytics: Evidence from the United States

Jahidur Rahman,Ning Zhao

doi:10.24818/jamis.2020.03007

Abstract

Research Question: This study investigates the relationship between information technology (IT) capability and firm performance in the 2010s, the era of big data analytics (BDA), in the context of US companies. Motivation: With the evolution of business intelligence and the proliferation of analytic tools that further improve IT capability, it is more important than ever to understand whether firms with stronger IT capabilities perform better. Idea: After categorizing firms into pairs of IT leaders and control groups, the performance of each pair of firms in each group was compared. Data: All data are publicly available from Compustat and InformationWeek (IW) 500. Tools: The Wilcoxon signed-rank test and regression analysis were used to examine how the performance of IT leaders and control groups changed during the 2010–2017 period. Findings: This results show no significant relationship between a firm’s IT capability and its performance in the sample of US companies during this period. Contribution: This study will help academicians and practitioners to better understand how the adoption and application of BDA derived from IT capability affects firm performance.

Highlights

Understanding how a firm’s information technology (IT) capability affects its business performance has been controversial since the 1990s, and a wealth of literature on the value of IT in business has been developed since (Chan, 2000; Dehning & Richardson, 2002; Kohli & Devaraj, 2003; Mahmood & Mann, 2000; Melville et al, 2004; Wade & Hulland, 2004)
Despite insufficient evidence on the subject, we are motivated by the growing worldwide attention to whether a firm’s IT capability affects its financial performance in the era of big data analytics (BDA)
We investigated this issue in the context of the United States by (1) selecting IT leaders and corresponding control groups from IW 500 and comparing their profit ratios and cost ratios from 2010 through 2017 and (2) adjusting for the financial halo effects to remove the effects from the previous years’ financial performance on the following years’ financial performance

Summary

Introduction

Understanding how a firm’s information technology (IT) capability affects its business performance has been controversial since the 1990s, and a wealth of literature on the value of IT in business has been developed since (Chan, 2000; Dehning & Richardson, 2002; Kohli & Devaraj, 2003; Mahmood & Mann, 2000; Melville et al, 2004; Wade & Hulland, 2004). Some studies have investigated the relationship between a firm’s IT capability and its performance during different time periods. Bharadwaj (2000), for instance, has been cited 5, 141 times according to the data from Google Scholar, and is one of the most convincing studies that provides strong evidence for the link between IT capability and firm performance. Using the resource-based view (RBV), it argues that firms categorized as IT leaders can make use of IT-related resources to produce unique IT capabilities that can lead to superior business performance and become the basis for their future competitive edge. Contrary to the previous findings, this study failed to find a link between IT leaders and superior business performance, as measured by profit and cost ratios, irrespective of whether this relationship is assessed by the industry-benchmark test, the pair-wise comparison test, or by regression analysis. There is no evidence to support the sustainability of IT capability

Methods

Results

Conclusion