Cloud Adoption and Firm Performance: Evidence from Labor Demand

65 Pages Posted: 26 Apr 2022

See all articles by Wang Jin

Wang Jin

Massachusetts Institute of Technology (MIT)

Date Written: April 14, 2022

Abstract

Using novel measures that capture the investment in cloud technology based on firms' labor demand, we show that cloud adoption is associated with significant productivity gains for a large sample of US public firms between 2010 and 2019. This finding is robust to a range of cloud-related measures, samples, and specifications controlling for time-varying industry and firm-level transitory shocks. The control function, dynamic panel, and instrumental variable methods are employed to address potential endogenous choices of cloud-related labor demand. Robust results from these models suggest that the identified productivity-enhancing effect is likely causal. More importantly, by employing the newly developed Difference-in-Differences (DiD) estimator for the staggered roll-out and heterogeneous effects of treatments, we show that the adoption of cloud is associated with about 2.3-6.9% increase in sales in the long run, consistent with those reported in the productivity estimation. This effect is statistically significant, economically large, and increases over time, indicating potential organizational learning and complementary investment. This study is among the first to provide large-scale firm-level evidence concerning both short-term and long-term effects of cloud on firm performance across a wide range of sectors.

Keywords: Cloud Adoption, Labor Demand, Firm Productivity, Difference-in- Differences (DiD), Aggregate Group-Time Average Treatment Effects

JEL Classification: L2, M2, D22, D24, O33

Suggested Citation

Jin, Wang, Cloud Adoption and Firm Performance: Evidence from Labor Demand (April 14, 2022). Available at SSRN: https://ssrn.com/abstract=4082436 or http://dx.doi.org/10.2139/ssrn.4082436

Wang Jin (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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