Assessing the impact of information technology capability on firm profitability and market value in emerging economies: a study from India

Investments in information technology (IT) form a substantial portion of capital expenditure of firms, and organisations are constantly looking for ways in which IT can be used to attain sustained profitability. However, there is scarcity of empirical studies that have examined whether IT can provide sustained competitive advantage to firms in major emerging economies such as India. This study seeks to empirically test whether superior IT capability can provide sustained profitability to multinational corporations and domestic firms in India. To this end, the financial performance of 94 firms from 15 different industry sectors has been analysed to determine whether superior IT capability of these firms led to improved profitability. Our results show that superior IT capability does not provide competitive advantage to firms operating in India. Another important finding of this research is that in recent years stock markets have given higher valuation to firms with superior IT capability despite the fact that superior IT capability is not associated with improved profitability. This finding has direct implication for investors and financial analysts who still perceive that IT capability can provide higher profitability to firms.

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