Persistent Profits & Transitory Losses: Role of IT Innovation Capability

41 Pages Posted: 10 Jan 2010 Last revised: 31 May 2010

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: April 19, 2010

Abstract

Motivated by the current recession, the realization that uncertainty will remain even when the economy recovers, and the fact that frequent performance slumps are becoming the norm in our hypercompetitive environment, we take up the following question: Does a company’s IT innovation capability (ITIC) strategy lead to value creation and affect its ability to recover from losses? Using a sample of large US firms during the recession of the early 2000s, we find that a systematic approach to ITIC not only leads to value creation (competitive advantage), but also substantially improves a firm’s ability to recover from negative earnings. Our overall results suggest that firms adopting a systematic approach to ITIC are better prepared to deal with the modern hypercompetitive environment than their non-systematic ITIC competitors.

Keywords: IT innovation capability, dynamic capabilities, earnings persistence, sustained value creation, recession

JEL Classification: M40

Suggested Citation

Chen, Changling and Lim, Jee-Hae and Stratopoulos, Theophanis C., Persistent Profits & Transitory Losses: Role of IT Innovation Capability (April 19, 2010). CAAA Annual Conference 2010. Available at SSRN: https://ssrn.com/abstract=1534228 or http://dx.doi.org/10.2139/ssrn.1534228

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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