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Does IT Capability and Competitive Actions Shape Firm Profitability?

Research investigating the relationship between information technology (IT) and firm profitability has been a central issue in the information systems (IS) area, and prior studies provided mixed and inconsistent results. To understand the causes of the inconsistent results, we adopted the competitive dynamics theory, which complements and extends other theories such as the resource-based view. This study develops a research model on how IT supports the exercise of competitive actions in the context of rivalry. Specifically, we suggest that IT capability enhances firm profitability by increasing competitive actions of a firm based on 668 firm-year observations in the United States (US). We have found that there is a positive influence of IT on firm performance. The results emphasize the need of considering competitive actions as a key factor to examine the value of IT in developing a firm’s competitiveness.