Empirical Evidence on the role of IT Innovation Capability on Value Creation During the Recession of Early 2000s

In this study, we investigate the role of IT innovation capability (ITIC) on earnings persistence during the recession of the early 2000s. Introducing dynamic ITIC as an explanatory variable in a zero-sum game setting, we classify firms in terms of their ITIC strategy. We argue that a systematic approach to ITIC leads to sustainable value creation, improved ability to recover from negative earnings, and cope with recession. Using a sample of large US firms from 1997 to 2004, we find that good (bad) performance of systematic ITIC leaders is more persistent (transitory) than that of non-systematic ITIC leaders. Systematic ITIC leaders are more likely to perform better during a recession. We conclude that systematic ITIC leaders are better prepared to deal with our contemporary hypercompetitive environment.