Chorng-Shyong Ong and Po-Yen Chen
The purpose of this paper is to differentiate and define the concepts of firm performance and firm value. Then, the implications of information technology (IT)-enabled firm…
Abstract
Purpose
The purpose of this paper is to differentiate and define the concepts of firm performance and firm value. Then, the implications of information technology (IT)-enabled firm performance and firm value will be clarified. Finally, the effects of IT capabilities on firm performance and firm value will be compared.
Design/methodology/approach
InformationWeek's IT leader rankings (from 1998 to 2011) are used for analysis in a longitudinal study. Three different test methods (i.e. significant years, significant levels, and adjusted-previous performance) are used.
Findings
It is confirmed that no matter which tests are examined, the contributions of IT capabilities to firm value are all greater than those to firm performance. This also shows that IT contributes to long-term influences more than it does to short-term influences.
Research limitations/implications
This study confirms that firm performance (accounting-based measures) and firm value (financial market-based measures) are two different variables and IT capabilities affect these two parts differently.
Practical implications
Firms should use a long-term viewpoint to deploy their IT strategies. This will create a long-term growth of firm value leading to greater competitiveness, and, ultimately, sustained competitive advantage.
Originality/value
The differences between firm performance and firm value in measurements, characteristics, and implications are specified. The empirical study confirms that IT capabilities contribute more to firm value than to firm performance, although IT capabilities influence both at the same time.
Details
Keywords
Chorng‐Shyong Ong and Poyen Chen
The purpose of this paper is to simultaneously determine the impact of information technology capabilities on firm performance, future firm performance, and firm value.
Abstract
Purpose
The purpose of this paper is to simultaneously determine the impact of information technology capabilities on firm performance, future firm performance, and firm value.
Design/methodology/approach
The secondary data for 480 matched‐firms are collected from InformationWeek (which provides the IT capabilities ranking) and the Compustat database (which provides financial data).
Findings
The results show that IT capabilities positively and significantly influence all three constructs and that the significance level of firm value is higher than that of firm performance and that of future firm performance. That is, IT capabilities are more relevant to firm value, which represents growth opportunities, intangible assets, and innovation, etc.
Practical implications
Based on these empirical findings that IT contributes more to the long‐term influences than to the short‐term influences, firm managers should pay more attention to the strategic positioning that IT provides for firms rather than only enhancing the operational effectiveness.
Originality/value
This study proposes a complete set of constructs, which includes firm performance, future firm performance, and firm value, to measure the different effects of information technology capabilities on firms and to discuss the corresponding managerial implications. Therefore, these three constructs can be further clarified and considered simultaneously. This has not been attempted by previous studies.