An Empirical Study On Information Technology Investment And Innovation Process Of High-tech Firms

“Innovation, coordination, green development, open-up and sharing” have been raised as the five principles of the 13 th Five-Year Plan during the Fifth Plenum of the 18 th Central Committee of the Communist Party of China. Innovation is absolutely one of the crucial factors of China's future development.During the past few decades, researchers have analyzed the relationship between Information Technology(IT) investment, firm innovation capability and firm value. However, to the best of my knowledge, no published article has researched the impact of firm IT investment on each dimension of the firm's ability to innovate. This paper tries to breakdown and classify the firm innovation ability to discover the relationship between IT investment, multiple dimensions of firm innovation ability and firm value.I have found that firm IT investment is positively correlated with firm value through improving its innovation ability. Firm-level innovation ability includes ideated innovation ability, which is composed by at least 2 dimensions: quantitative and qualitative. One of the main purposes of this study is to look into the different innovation abilities separately and to try to find the relationship between them and IT investment.I have used the number of newly assigned patents as an indicator of quantitative firm ideated innovation ability and took the total number of patents cited, number of failure and breakthrough patents as indicators of qualitative firm ideated innovation ability.The NBER(National Bureau of Economic Research) database has been the main source of innovation data during previous research, however NBER stopped updating its database after 2006. This situation has made even the most recent research use a time window around the year 2000, which has decreased the effectiveness of the research. I have used the EPO(Europe Patent Office) PATSTAT(Patent Statistical) database instead to improve this situation. Moreover, the debut of the PATSTAT database during this research is one of the main contributions of this paper.This research has the following findings: 1. Firm IT investment is highly and positively correlated with the firm's ideated innovation ability; 2. Firm's ideated innovation ability can affect firm value in two ways: by increasing commercialized innovation or increasing the number of breakthrough innovations.