Examining the Determinants of Productive Efficiency with it as a Production Factor

Abstract

Information technology (IT) is becoming so important in conducting business nowadays that recent research has begun to treat IT as a production factor in the firm's production process. Following this line of thinking, this paper intends to examine the relationship between IT spending and productive efficiency so as to identify some firm-specific characteristics that are associated with the efficient use of IT in the production of output. The methodology employed in this study is a generalized stochastic frontier model. In the presence of IT spending as a production factor, we find that out of the seven firm-specific characteristics examined, beta and debt-to-equity ratio are negatively correlated with productive efficiency, while the other five (return on assets, return on equity, shareholder return, sales growth, and research and development expenses) have positive effects. Implications for practitioners are drawn from the empirical results, and some topics are suggested for future research.

• Information Technology Spending
• Productive Efficiency
• Generalized Stochastic Frontiers
• Productivity Paradox
• Performance Evaluation