Measuring the long term impact on firm performance using ROA: An empirical study of RFID adoption

Abstract

In the era of the Internet of things, RFID (radio frequency identification) has attracted substantial interest of both managers and scholars. However, the unclear benefits of RFID and great risk make investors quite hesitant to invest in this disruptive and innovative technology. Prior research had employed the event study method to examine the short term market reaction of RFID adoption and found significant positive abnormal return. But whether RFID adoption can payback in the long run has not been addressed. In this paper, we extend previous research by using the ROA (Return on Assets) method to analyze the impact of RFID adoption on firm market value. We selected 74 publicly traded companies which were RFID adopters and there are altogether 108 adoption announcements ranging from 1997 to 2009. Then Pair T test of ROA had been conducted for each publicly traded company and its matching company. Other potential confounding factors are also considered such as the type of industry, timing of adoption, country, and firm characteristics such as level of diversification, financial health and growth potential. Altogether, there is no significant difference between RFID adopters and RFID non-adopters. Our result indicates that RFID's firm value has not been fully reflected in the long run. This may be attributed to its high cost and other uncertainties. The research in our paper may provide practical and academic implications.