Does RFID improve firms’ financial performance? an empirical analysis

Radio frequency identification (RFID) is viewed as a technology that improves supply chain efficiency by enhancing inventory efficiency, optimizing logistics, and coordinating the flow of materials. Although RFID has gained great attention in many business applications, the financial gain that accrues over time from RFID adoption is not well understood. We examine the effects of RFID on firm profits while adjusting for self‐selection of adoption choice. We find that firms self‐select into a certain adoption mode on the basis of their organizational characteristics. Our results also show that RFID confers significant benefits for firms that have adopted RFID. Interestingly, improved inventory ratio and sales efficiency begin to play a greater role in shaping higher profitability over time for firms that have adopted RFID possibly due to time‐consuming processes for them to reap the benefits from RFID. However, we find that the values of RFID that accrue to firms are not universal across firm. That is, our results suggest that RFID confers a significant value for certain firms while it does not for other firms with unobservable disadvantages. In sum, our study sheds new light on what drives firms to adopt RFID and on which firms achieve higher financial performance in a post‐adoption period as a result of RFID adoption.