The impact of information technology investment on enterprise financial performance in China

Abstract

Purpose

This paper aims to examine the influence of information technology (IT) investment, including innovative IT investment and non-innovative IT investment, on comprehensive enterprise financial performance in a developing country, China.

Design/methodology/approach

This paper applies the method proposed by Barber and Lyon to construct the control group to study the impact of IT investment on financial performance of enterprises, using a sample of 229 IT investment announcement data of Chinese listed companies between 2011 and 2015.

Findings

The analysis of the financial benefits of these IT implementations yields mixed results. The results show that companies investing in IT can significantly improve profitability both the implementation and post-implementation periods for the full sample, improve the solvency only during the implementation phase, improve the growth ability after implementation time and cannot reduce business costs in all periods. At the same time, the authors find that, compared with non-innovative IT investment, the innovative samples do not achieve better financial performance, except the profitability financial indicator.

Research limitations/implications

There are several limitations in this research. First, there is no large sample about the IT investment information data set in China, so this study was compelled to use limited sample data from China; hence, this could lead to errors of too early generalization. Second, the firms in the sample are all in China’s listed companies, so this may either not accurately or possibly could reflect the entire environment of developing countries.

Originality/value

First, it extends the scope of the established literature by examining the influence of IT investment with China’s public firms data and IT investment to see if such spending has had an influence on corporate financial performance. Second, there is a lack of research on the impact of IT investment on comprehensive financial performance of an enterprise, compared with the previous one-sided financial performance, such as profitability or financial cost. Third, as far as the authors are aware, there are no studies on the impact of IT investment on firm financial performance based on innovative and non-innovative classification.

Citation

Ji, P., Yan, X. and Yu, G. (2020), "The impact of information technology investment on enterprise financial performance in China", Chinese Management Studies, Vol. 14 No. 3, pp. 529-542. https://doi.org/10.1108/CMS-04-2019-0123