Information Technology and Firm Profitability in Network Environments

Despite prolific research on IT business value, this stream of research still encounters considerable limitations such as inconsistent findings of the direct link between IT and firm profitability and the demonstration of the indirect relationship between IT and specific aspects of firm value without explicitly considering network environments. To overcome the limitations caused by utilizing the static and narrow definition of IT and investigating firm profitability in a secular business environment, this study adopts the dynamic capability theory to propose the concept of dynamic IT capability and tests its impact on firm profitability under networked environments. We tested research hypotheses by collecting secondary data of 26 companies across 19 industries during 1994-2008 and analyzing data using a multilevel modeling technique. The initial data analyses showed strong supports on dynamic IT capability’s direct and significant impact on firm profitability. It also was found that dynamic IT capability significantly interacted with network factors such as centrality and structural holes.