Information technology and intangible output : the impact of IT investment on innovation productivity

Research investigating the contribution of information technology (IT) to firm productivity is moving beyond the question of whether IT has an impact, to how that impact is created. Traditional measures of firm output, such as value added, profit and market value, may be less useful in this context. However, the use of intangible outputs holds some promise in assessing how IT creates value within the firm. An important and information-intensive intangible output is innovation, which can be supported through the application of information technology. A patent production function is specified using R&D capital and IT capital as inputs, and citation-weighted patent output as an index of the overall inventive output of the firm. A panel of 262 large U.S. firms, from the years 1987 to 1996, is analyzed using OLS regression. Results indicate that, at the margin, the effect of IT capital on patent output is negative. This implies that increasing the general level of IT investment in a firm cannot be assumed to automatically improve the productivity of formal R&D. Recent IT productivity research suggests this may be due to the role of unmeasured complimentary investments in making IT effective.Business, Sauder School ofManagement Information Systems, Division ofGraduat