IT Capability and a Firm's Ability to Recover from Losses: Evidence from the Economic Downturn of the Early 2000s

Prior literature shows that during an economic downturn firms have difficulty sustaining superior performance, and a larger percentage of firms report losses. Motivated by this literature, we explore the role of sustainability of organizational IT capability (ITC) on a firm's performance during an economic downturn. Specifically, we examine how ITC sustainability contributes to a firm's ability to recover from losses. ITC sustainability reflects a firm's ability to resist competitors' attempts to imitate or improve on its ITC. We use ITC sustainability to classify firms as sustainable (Systematic ITC), as non- sustainable (Occasional ITC), and as having no ITC (Non-ITC). Using a sample of large U. S. firms during the economic downturn of the early 2000s, we show that Systematic ITC firms achieve higher levels of firm-specific abnormal earnings and are capable of faster recovery when compared to all competitors (Occasional ITC and NonITC firms) and competitors with only Occasional ITC.