Information Technology Investment and Commercialized Innovation Performance: Dynamic Adjustment Costs and Curvilinear Impacts

Abstract

Firms’ investment in information technology (IT) has been widely considered to be a key enabler of innovation. In this study, we integrate prior findings on the augmenting pathways (where IT investment supports innovation) with a new theory explaining the suppressing pathways (where dynamic adjustment costs associated with large IT investment can be detrimental to innovation) to propose an overall inverted U-shaped relationship between IT investment and commercialized innovation performance (CIP). To test our theory, we analyze a unique panel dataset from the largest economy in Europe and discovered a curvilinear relationship between IT investment and CIP for firms across a broad spectrum of industries. Our research presents empirical evidence corroborating the augmenting and suppressing pathways linking IT investment and CIP. Our findings serve as a cautionary signal to executives, discouraging overinvestment in IT.