Innovation in information systems and valuation of intangibles

Abstract

Innovations in information systems, including the adoption of new information technologies and the creation of new flows of knowledge and information beyond traditional boundaries, represent an emerging form of intangibles relevant for firms from a wide range of industries. We examine firms’ incentives to invest in the production of this intangible and provide evidence on the role of this innovation in the value creation of firms’ intangibles. Our research setting involves firms using internet to create a continuous stream of new knowledge about the firm’s performance and share it with external stakeholders. We find that firms with more investment in other intangibles, such as R&D and advertising, are more likely to undertake this type of information systems innovation. We also find that this innovation enhances the value of firms’ other intangibles, including investor trust in the firm and firms’ investment in R&D and advertising. Thus, our study demonstrates that innovation in information systems creates a distinct and valuable intangible asset and complements firms’ other intangibles.