The Effects of IT Investments and Skilled Labor on Firms’ Value Added

Torben Pedersen; Anna  Scedrova; Alina Grecu

doi:10.1016/j.technovation.2022.102479

The Effects of IT Investments and Skilled Labor on Firms’ Value Added

Torben Pedersen^*, Anna Scedrova, Alina Grecu

^*Corresponding author for this work

Department of Strategy and Innovation

Research output: Contribution to journal › Journal article › Research › peer-review

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Abstract

Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms’ value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself.

Original language	English
Article number	102479
Journal	Technovation
Volume	116
Pages (from-to)	11
ISSN	0166-4972
DOIs	https://doi.org/10.1016/j.technovation.2022.102479
Publication status	Published - Aug 2022

Keywords

IT investments
Skilled labor
Production frontier
Technical efficiency
Stochastic frontier model

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title = "The Effects of IT Investments and Skilled Labor on Firms{\textquoteright} Value Added",

abstract = "Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms{\textquoteright} value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself.",

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AU - Grecu, Alina

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N2 - Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms’ value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself.

AB - Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms’ value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself.

KW - IT investments

KW - Skilled labor

KW - Production frontier

KW - Technical efficiency

KW - Stochastic frontier model

KW - IT investments

KW - Skilled labor

KW - Production frontier

KW - Technical efficiency

KW - Stochastic frontier model

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M3 - Journal article

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