IT Capability and a Firm’s Ability to Recover from Losses: Evidence from the Economic Downturn of the Early 2000s

Journal of Information Systems, Vol. 25, No. 2, pp. 117-144, Fall 2011

Posted: 14 Jan 2009 Last revised: 26 Jul 2014

See all articles by Changling Chen

Changling Chen

University of Waterloo - School of Accounting and Finance

Jee-Hae Lim

University of Hawaii, Manoa

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Date Written: February 24, 2012

Abstract

Prior literature shows that during an economic downturn firms have difficulty sustaining superior performance, and a larger percentage of firms report losses. Motivated by this literature, we explore the role of sustainability of organizational IT capability (ITC) on a firm’s performance during an economic downturn. Specifically, we examine how ITC sustainability contributes to a firm’s ability to recover from losses. ITC sustainability reflects a firm’s ability to resist competitors’ attempts to imitate or improve on its ITC. We use ITC sustainability to classify firms as sustainable (Systematic ITC), as non-sustainable (Occasional ITC), and as having no ITC (Non-ITC). Using a sample of large US firms during the economic downturn of the early 2000s, we show that Systematic ITC firms achieve higher levels of firm-specific abnormal earnings and are capable of faster recovery when compared to all competitors (Occasional ITC and Non-ITC firms) and competitors with only Occasional ITC.

Keywords: IT capability, firm-specific abnormal earnings, loss recovery

JEL Classification: L25, M15

Suggested Citation

Chen, Changling and Lim, Jee-Hae and Stratopoulos, Theophanis C., IT Capability and a Firm’s Ability to Recover from Losses: Evidence from the Economic Downturn of the Early 2000s (February 24, 2012). Journal of Information Systems, Vol. 25, No. 2, pp. 117-144, Fall 2011. Available at SSRN: https://ssrn.com/abstract=1326748

Changling Chen (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Jee-Hae Lim

University of Hawaii, Manoa ( email )

2404 Maile Way
Honolulu, HI Honolulu 96822
United States
(808) 956-8503 (Phone)
(808) 956-9888 (Fax)

HOME PAGE: http://shidler.hawaii.edu/directory/jee-hae-lim/soa

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
519-888-4567 x35943 (Phone)

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