When All Products Are Digital: Complexity and Intangible Value in the Ecosystem of Digitizing Firms

Forthcoming, MIS Quarterly

61 Pages Posted: 7 May 2020

See all articles by Pouya Rahmati

Pouya Rahmati

University of Georgia

Ali R. Tafti

University of Illinois at Chicago

J. Christopher Westland

University of Illinois at Chicago - Department of Information and Decision Sciences

César Hidalgo

University of Toulouse; University of Manchester; Harvard University

Date Written: April 30, 2020

Abstract

During the last four decades, digital technologies have disrupted many industries. Car control systems have gone from mechanical to digital. Telephones have changed from sound boxes to portable computers. But have the firms that digitized their products and services become more valuable than firms that didn’t? Here we introduce the construct of digital proximity, which considers the interdependent activities of firms linked in an economic network. We then explore how the digitization of products and services affects a company’s Tobin's q—the ratio of market value over assets—a measure of the intangible value of a firm. Our panel regression methods and robustness tests suggest the positive influence of a firm’s digital proximity on its Tobin’s q. This implies that firms able to come closer to the digital sector have increased their intangible value compared to those that have failed to do so. These findings contribute a new way of measuring digitization and its impact on firm performance that is complementary to traditional measures of information technology (IT) intensity.

Keywords: complexity, intangible value, Tobin’s q, digitization, software industry, pervasive computing, social networks

Suggested Citation

Rahmati, Pouya and Tafti, Ali R. and Westland, J. Christopher and Hidalgo, César, When All Products Are Digital: Complexity and Intangible Value in the Ecosystem of Digitizing Firms (April 30, 2020). Forthcoming, MIS Quarterly. Available at SSRN: https://ssrn.com/abstract=3589188 or http://dx.doi.org/10.2139/ssrn.3589188

Pouya Rahmati

University of Georgia ( email )

Athens, GA 30602-6254
United States

Ali R. Tafti (Contact Author)

University of Illinois at Chicago ( email )

601 S Morgan St, 2403 University Hall, MC 294
Chicago, IL 60607
United States

J. Christopher Westland

University of Illinois at Chicago - Department of Information and Decision Sciences ( email )

University Hall, Room 2404, M/C 294
Chicago, IL 60607-7124
United States

César Hidalgo

University of Toulouse ( email )

41 Allées Jules Guesde - CS 61321
Toulouse
France

University of Manchester ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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