Revisiting the Role and Impact of Information Technology Capability

This study is a conceptual replication of Bharadwaj (2000) investigating the impact of IT capability on a firm’s financial performance. The original study demonstrated that firms with superior IT capability will deliver superior financial performance manifested by higher profit ratios and lower cost ratios. However, conflicting findings emerged regarding the relationship between IT capability and a firm’s financial performance (Chae et al., 2014). Furthermore, in the past decade, advancements in statistical analysis, such as panel data modeling techniques that were not used in these past studies have provided more robust analytical techniques to observe patterns over time. Hence, incorporating the conceptual foundations as in prior studies on IT capability (e.g., Bharadwaj, 2000; Santhanam & Hartono, 2003), we re-investigate the impact of IT capability on a firm’s financial performance but do so by using a large longitudinal dataset and leveraging the power of panel data analysis. Our findings are consistent with the results of Bharadwaj (2000), Santhanam and Hartono (2003), and Choi and George (2016), suggesting that IT capability has a significant positive impact on financial performance. Our results do not support the findings of Chae et al. (2014), who found no association between IT capability and financial performance. We discuss the implications of our findings for the continued use of the theoretical framework of IT capability derived from the resource-based view.