A Multilevel Model of Information Technology Value

Traditionally, firms that dominate their industries perform better when their markets are growing. This is because their large size makes it easier for them to achieve economies of scale. We present empirical evidence that the impact of information technology (IT) on the firm performance is the opposite: firms with less market power enjoy greater benefits in a growing market. This study draws on the IT value literature to examine how industry and firm attributes jointly affect firms’ returns on their IT investments. To that end, we develop cross-level hypotheses to examine how the economic value of IT to firms is influenced by industry growth and firm size. By using a hierarchical linear model to test the industry–firm interactions, we are able to control for violations of statistical assumptions that are likely to bias cross-level estimates obtained using conventional statistical methods. The implications of these findings for research and practice are examined.