Industry 4.0 Technologies: Empirical Impacts and Decision Framework

Production and Operations Management, 0[10.1111/poms.13813]

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See all articles by Chunguang Bai

Chunguang Bai

University of Electronic Science and Technology of China

H. Alice Li

Ohio State University (OSU) - Department of Marketing and Logistics

Yongbo Xiao

School of Economics and Management, Tsinghua University

Date Written: July 12, 2022

Abstract

Industry 4.0 technologies have been regarded as powerful means to enhance a firm's competitiveness in the Internet of Things environment. However, implementing Industry 4.0 technologies calls for considerable capital expenditure and might interrupt normal production in the short term. This study conducts an empirical analysis of the impact of investing in Industry 4.0 technologies, based on a sample of 563 investment announcements of publicly listed firms on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2013 to 2018. Using the event study method, we find empirical evidence that these investment announcements lead to positive stock market reactions and improved financial performance. In particular, we empirically evaluate firms' short-and long-term stock prices and financial measures by considering the type of investments (i.e., digital or physical investments), whether the investment is product-oriented or manufacturing process-oriented, and whether the technologies are applied within a firm or across the supply chain. Our empirical findings hold true when a firm's strategic decision is accounted for and remain robust through various tests. Furthermore, we propose a decision framework for firms to balance the tradeoff between shortterm disruption and long-term benefits resulting from an investment in Industry 4.0. Specifically, we develop a two-period model and investigate when and to what extent a firm should invest in Industry 4.0 technologies. Empirical and modeling analyses provide managerial insights for firms that grapple with the net benefit of investment in Industry 4.0.

Keywords: Industry 4.0 technologies, stock market reaction, financial performance, production disruption, improved efficiency

Suggested Citation

Bai, Chunguang and Li, H. Alice and Xiao, Yongbo, Industry 4.0 Technologies: Empirical Impacts and Decision Framework (July 12, 2022). Production and Operations Management, 0[10.1111/poms.13813], Available at SSRN: https://ssrn.com/abstract=

Chunguang Bai

University of Electronic Science and Technology of China ( email )

H. Alice Li (Contact Author)

Ohio State University (OSU) - Department of Marketing and Logistics ( email )

Fisher Hall 538
2100 Neil Ave
Columbus, OH 43210
United States

Yongbo Xiao

School of Economics and Management, Tsinghua University ( email )

Beijing, 100084
China

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