Implementation of knowledge management systems and firm performance: An empirical investigation

Abstract

This study examines the impacts of adopting knowledge management systems (KMS) on firm performance. Although many organizations have implemented KMS, sparse empirical evidence reveals the impacts of KMS on firm performance. This research attempts to analyze the impacts of KMS on the firms that adopt KMS with the data extracted from the COMPUSTAT. The results indicate that these firms significantly reduce administrative costs and improve productivity in the second year after adopting KMS. To control the macroeconomic effects, the study also compares the financial performance of KMS adopters and non-adopters in a pairwise design. Furthermore, pertaining to cost and profit ratios, significant differences arise because the financial performance of non-adopters decreases over time while it holds steady for adopters. The findings verify some of our hypotheses, provide new insights into the productivity paradox associated with KMS adopters, and confirm that KMS adopters indeed gain a competitive advantage over non-adopters.