Information Technology Investment and Commercialized Innovation Performance: Dynamic Adjustment Costs and Curvilinear Impacts

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Abstract

Firms’ investment in information technology (IT) has been widely considered to be a key enabler of innovation. In this study, we integrate prior findings on the augmenting pathways (where IT investment supports innovation) with a new theory explaining the suppressing pathways (where dynamic adjustment costs associated with large IT investment can be detrimental to innovation) to propose an overall inverted U-shaped relationship between IT investment and commercialized innovation performance (CIP). To test our theory, we analyze a unique panel dataset from the largest economy in Europe and discovered a curvilinear relationship between IT investment and CIP for firms across a broad spectrum of industries. Our research presents empirical evidence corroborating the augmenting and suppressing pathways linking IT investment and CIP. Our findings serve as a cautionary signal to executives, discouraging overinvestment in IT.

Published online: June 21, 2021

Additional Details

Author Prasanna P. Karhade and John Qi Dong
Year 2021
Volume 45
Issue 3a
Keywords Information technology investment, overinvestment, dynamic adjustment costs, commercialized innovation performance, digital innovation, business value of information technology, curvilinear relationships
Page Numbers 1007-1024; DOI: 10.25300/MISQ/2021/14368