The Impact of Information Technology Investments on Firm Performance and Evaluation: Evidence from Newly Industrialized Economies

Abstract

The impact of information technology (IT) investments on firm performance has been the subject of active research in recent years. However, findings of almost all studies are based on data collected in the United States. Little work has been done elsewhere to validate these results and to see if they are applicable across national boundaries. In this study, we fill this gap by comparing four newly-industrialized economies (NIEs) with regard to the impact of IT capital on business performance. Secondary data collected from various sources are used to assess the impact over the period from 1983 to 1991. Findings based on four business measures and a market valuation model based on Tobin's q are reported. While the current results are consistent with work done in the United States in general, discrepancies among the four NIEs are observed. Combined with findings from previous work, three pieces of evidence seem to emerge that are generally observed across country boundaries. First, IT investment is not correlated with shareholder's return. Second, there is little evidence that the level of computerization is valued by the market in developed and newly-developed countries. Third, there is no consistent measurement of IT investment as indicated by the mixed results across different performance ratios. Modeling and measurement concerns expressed in previous U.S.-based studies are also observed in our comparative study. Our findings provide a starting point to accumulate a body of comparative studies for the development of a theory that links IT investment, firm performance, and macro factors such as national technology policy in an integrated framework.