Complementarities between IT and Firm Diversification and Performance Implications

This paper empirically investigates the role played by IT in diversified firms with respect to firm performance, emphasizing the complementary relationship between IT and firm diversification. First by reviewing management and finance literature, we briefly examine different types of diversification, including related diversification, unrelated diversification, and geographic diversification, particularly regarding their relationship to firm performance. Then we empirically test the interaction effects between IT and different types of diversification on firm performance and find out that the interaction between IT and related diversification has a significantly positive impact on performance. Our hypotheses and findings are consistent with prior theory-based argument that IT when used to leverage the difference in strategic resources can have a positive impact on firm performance. As a whole, this paper aims to enrich the IT business value studies by taking on a new perspective or contingency under which IT does matter to firms.