The Impact of RFID Adoption on the Market Value of Firms: An Empirical Analysis

Abstract

Extant research praises the benefits of radio frequency identification (RFID) on the basis of case studies and experience reports. However, empirical studies that access the strategic impact of RFID on organizations are rare, and the financial impact of RFID adoption on the firms remains unclear. This article provides empirical evidence related to the effect of RFID adoption on market value of firms by examining short-term market reaction toward RFID adoption. Based on 108 publicly traded firms that adopt RFID, we find that RFID adoption has a statistically significant negative impact on a firm's market value. The stock price of the firm decreases by at least 0.29% on the day of the announcement, indicating that the investors perceive RFID adoption announcements to be bad news for most firms. Moreover, the subsampling analysis indicates that US-based firms, late adopters, nonmanufacturing firms, less diversified firms, financially unhealthy firms, and low growth potential firms suffer more negative impact when they announce the news of RFID adoption. Overall, this article adds to the accumulating evidence about the risks that accompany a disruptive IT like RFID and provides a note of caution to firms that are interested to invest in RFID.