An empirical study of the impact of the introduction of information systems on the financial performance of SMES in Korea

Abstract

Various studies on the impact of the introduction of information systems on the financial performance of small and medium sized enterprises (SMEs) have been conducted. While some researchers found that these information systems led to enhanced financial performance, others reported little or decreased financial performance. As a result, the controversy has continued on the impact of information systems on a firm’s financial performance. This paper attempts to assess the effect of the Korean government’s informatization support policy for SMEs by empirically testing the variations in financial performance of SMEs after the introduction of information systems. Whether or not firms that have established information systems with the help of government subsidies have achieved improved financial performance is tested by comparing a target group (firms that have introduced systems) with a control group (firms that have not introduced systems). The compiled average financial ratios of the two groups over the four years after the introduction of information systems indicated that the asset turnover ratio(ATR) was significantly different between the two groups; however, liquidity ratio, return on assets (ROA), capital productivity, and sales growth rate were not significantly different. Meanwhile, among those firms that introduced systems, only the ATR was significantly different as the average financial ratios over the four years since the system was introduced were calculated. However, gradual changes in financial performance over time after the systems were introduced took on different aspects. The ATR showed a significant improvement in performance during the first and second years of introducing the systems, and ROA during the first year; however, thereafter they failed to show a significant difference in performance. There was a significant decrease in capital productivity in the fourth year after the systems were introduced, while sale growth rate displayed a significant decline in the third and fourth years. Prior to that time, it did not show any significant difference. In conclusion, the introduction of information systems affected the financial performance selectively at specific times and for specific ratios. These results would provide useful insights to SMEs that are considering introducing information systems or policymakers who plan and implement informatization support.