An Empirical Investigation of the Relationship between Firm Information Technology Investments and Innovation

Within the last four decades, IS and business scholars have shown a growing interest in information technology (IT) investments. As firms continue to make huge investments in IT, it is important to understand how IT provides competitive advantages to the firms. However, the direct effects of IT in creating business advantages are riddled with the productivity paradox. In this research, our goal is to examine the direct effects of IT investments on firm innovation. We believe that an investigation of this link will provide an important underlying mechanism that may explain how IT investments indirectly create performance differentials among firms. Using IT investments data from Information-Week 500 and innovation (patents) data from the National Bureau of Economic Research (NBER), we generate hypotheses grounded in the resource-based view (RVB) of the firm. The results of the study provide support for the effect of IT investments on innovation.