IS/IT investments and firm financial performance: Did Portugal faced the so called “productivity paradox”?

Abstract

IS/IT investments are seen has having an enormous potential impact on the competitive position of the firm, on its performance, and demand an active and motivated participation of several stakeholder groups. An important stream of research conducted all over the world has tried to understand these phenomena, called in the literature as «IS business value» field. However there is a gap in the literature, addressing the Portuguese situation. No empirical work have been done to date in order to understand the impact of IS/IT on financial performance of those firms. Using data from two surveys conducted by the Portuguese National Institute of Statistics (INE), Inquiry to the use of IS/IT by Portuguese companies (IUTIC) and the Inquiry Harmonized to (Portuguese) companies (accounting data), this study relates (using regression analysis) the amounts spent on IS/IT with the financial performance indicator Returns on Equity of Portuguese companies with more than 250 employees. The aim of this paper is to shed light on the Portuguese situation concerning the impact of IS/IT on Portuguese top companies financial performance. Empirically, we test the impact of IS/IT expenditure on firm performance of a sample of Portuguese large companies. Our results, based on firm-level data on IS/IT expenditure and financial performance as measured by return on equity (1186 observations) for the years of 2003 and 2004, exhibit a negative impact of IT expenditure on firm performance, in line with “productivity paradox” claimants.