Lagged Impact of Information Technology on Organizational Productivity

This research addresses the important theoretical and empirical issue surrounding business value of information technology (IT). Several IT productivity studies have failed to find a significant relationship between contemporaneous IT spending and firm productivity. One reason is the delay or lag between spending on IT, and its resulting impact on production processes in the firm. This paper determines two important aspects about the lagged impact of IT. First, do contemporaneous and previous years’ IT capital spending show positive correlation with firm output? Second, after what period does the relationship between IT capital spending and firm output become insignificant? We use a data spanning 23 years from the healthcare industry. We use a specialized econometric technique to determine lag lengths. We find that, on average, IT capital shows a positive impact at the sixth year after the spending, and only for two years following that. By the 8th year, the impact of IT is not significantly different from zero.

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