An Empirical Analysis of the RFID Effect on Suppliers' Financial Performance

The objective of this study is to rigorously examine the effects of RFID on suppliers’ profitability while adjusting for endogeneity bias arising from the decision process for RFID adoption. To this end, we use a Heckman two-stage estimation method, which allows us to control for endogeneity between a firm’s organizational characteristics and its decision for RFID adoption. We find that suppliers faced with both a low level of inventory efficiency and with highly uncertain demand are more likely to adopt RFID. Further, suppliers that have adopted RFID achieve greater financial gains than their counterparts that have not. More importantly, we show that these financial gains result from improved inventory and sales efficiencies after RFID is deployed. In sum, our study sheds new light on what drives supplying firms to adopt RFID and on its role in shaping relatively higher financial performance in a post-adoption period.