The Influence of Industry Growth and Firm Market Share on Firm-Level IT Value

Market-dominant firms traditionally have an advantage in growing markets because they operate with larger average plant sizes and are better able to reap the rewards of economies of scale. We present evidence that with information technology (IT), the effect is precisely the opposite: firms with less market power enjoy the benefits in a growing market. The influence of firm-level attributes on the economic value of information technology (IT) to firms has been the predominant focus of much prior research in this field. While some studies have examined how IT value differs across industries, there has been little research on how industry and firm attributes jointly affect firms’ returns on their IT investments. To that end, we develop cross-level hypotheses to examine how the latter is influenced by industry growth and firm size. By using a hierarchical linear model to test the industry-to-firm interactions, we are able to control for violations of statistical assumptions that are likely to bias cross-level estimates obtained using conventional statistical methods. Results of the analysis reveal that 93.25% of the variance in firm-level IT value lies within firms, while 6.75% is attributable to industrylevel factors. The implications of these findings for research and practice are examined.

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