City Research Online

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.

Publication Type:	Article
Additional Information:	© 2022. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/.
Publisher Keywords:	IT investments, Skilled labor, Production frontier, Technical efficiency, Stochastic frontier model
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Departments:	Bayes Business School Bayes Business School > Management
SWORD Depositor:	Symplectic Administrator

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