Information Technology Firms, and Revenue and Profit Stall: Theory and Empirical Evidence
Terry College of Business
University of Georgia
Friday, Apr 2
10 – 11 am | Zoom
(send an email to email@example.com to get the Zoom link)
Slowdown in revenue or profit growth, what we call revenue stall or profit stall, is a key concern for any firm. This study examines the stall phenomenon and proposes three hypotheses to explain how Information Technology (IT) firms differ from non-IT firms in revenue stall and profit stall. First, we hypothesize that IT firms are more susceptible to revenue stall and profit stall than non-IT firms. Second, we hypothesize that coordination investments reduce revenue stall susceptibility and profit stall susceptibility to a greater extent in IT firms than in non-IT firms. Third, we hypothesize that innovation investments reduce revenue stall susceptibility and profit stall susceptibility to a greater extent in IT firms than in non-IT firms. Our analyses of a unique secondary longitudinal data of over 1200 large public U.S. firms from 1950-2015 supports our hypotheses. Our results are robust to endogeneity and alternative ways of measuring stall susceptibility. In further exploratory analysis, we find that revenue stall susceptibility mediates the effect of coordination investment and innovation investment on profit stall susceptibility. We also use our models to predict stall susceptibility, and we find a positive and high correlation between the predicted and actual values of stall susceptibility. Overall, our study contributes to theory and managerial practice by uncovering a non-intuitive finding that although IT firms are more susceptible than non-IT firms to revenue stall and profit stall, IT firms are more responsive than non-IT firms to investments in coordination and innovation that reduce stall susceptibility.