Adoption of RFID and its Long Term Impact on Firm Value

Abstract

With the growing scale of RFID investment, the relationship between RFID and firm value has attracted the attention of a lot of researchers. Prior research had employed the event study method to examine the short term market reaction to RFID adoption and found significant negative abnormal return. In this paper, we extend previous research by investigating the long term impact of RFID investment on firm market value using the CPA (Calendar Portfolio Analysis), 108 announcements related to 74 publicly traded companies were analysed. Our results indicate an overall significant negative impact on long term abnormal return of market value after adoption of RFID. It is also discovered that non-US based firms, late adopters, manufacturers, highly diversified firms, high financially unhealthy firms and low growth potential firms suffered more negative impact in the long term. The results signify that the market is impacted by the risks associated with the use of a new and disruptive technology like RFID and may not yet be ready to accept it as a standard technology that is adopted by firms. Put together, our results provide new insights into how RFID and other contextual factors interact to affect the financial performance of firms in the long run.