An Examination of Lag Effects in Relationships between Information Technology Investment and Firm-Level Performance

We focus on two issues that have hindered understanding of the IT investment firm performance relationship: the variety of firm performance measures used and the existence of a time-lag for performance effects. We develop theoretical arguments concerning the nature of different classes of performance measures and their abilities to capture the effects of IT investment initiatives as well as the nature of the lag effect for different types of IT investments. Our empirical findings generally confirm our theoretical arguments. Automate IT investments demonstrate the most evident impacts on firm performance as they were observed for three categories of firm performance: Production costs, profitability, and market valuation. Transform IT investments performance impacts are most evident with profitability. Secondly, our findings provide mixed evidence regarding the nature of the lag between the time of an IT investment and its influence on firm performance. Specifically, for accounting-based performance metrics, transform IT investments exhibit a longer time-lag than automate IT investments; for market-based performance metrics, the reverse was observed. Finally, it appears that informate IT investments may be the most challenging type of IT investment to link to firm performance.