Limited Effectiveness of IT/IS Investments in an Emerging Economy

Abstract

The business value of investments in information technology/information system (IT/IS) has been the subject of active research over several decades. Even though a plethora of similar studies analyzing the impact of promised IT/IS investments on firm performance exists, the results, largely inconclusive, mostly concentrate on the developed countries. In this backdrop, and with an expected manifold rise in IT/IS investments in India in the coming years, an assessment of the relationship between investments and firm performance can be noteworthy. The study explores this important issue by analyzing the impact of IT/IS investments on the firm's performance in India based on data of around 6500 IT/IS investments during 2000-2016. We deploy a series of univariate and multivariate analyses and complement those with several robustness tests. Our principal findings indicate that IT/IS investments on the average in India have been mostly unsuccessful in impacting firm performance positively, in line with "productivity paradox" phenomenon previously documented in the U.S. and other markets. We substantiate our principal results using several robustness tests. We offer several possible explanations of our results spanning across both IS as well as finance literature and discuss the implications of future investment prospects for firms. The results highlight the need for adoption of caution by firms operating in emerging economies like India while considering future IT/IS investment decisions. These suggestions are likely to serve as a good reference point in other emerging economies as well.