IDEAS home Printed from https://ideas.repec.org/p/rif/wpaper/117.html
   My bibliography  Save this paper

An Analysis of Digitalization and Firm Performance in Finland’s Private Service Industries

Author

Listed:
  • Kuosmanen, Natalia
  • Pajarinen, Mika
  • Heshmati, Almas

Abstract

The service sector is undergoing rapid changes attributed to digitalization. This study examines the relationship between digitalization and the performance of the Finnish private service firms from 2015 to 2021 using linked employer-employee data, financial data and an IT usage survey. Our descriptive and regression analyses reveal significant variability in the level and areas of digital adoption across service industries. Information and communication, and professional activities are found highly digitalized, while accommodation and food service activities, and transportation and storage lag in digitalization intensity. Additionally, we find a strong positive correlation between firms’ digitalization and revenues, particularly for firms with higher digital intensity. This correlation persisted throughout the COVID-19 pandemic. We also observe a positive correlation between digitalization and productivity in the early years, but more recent data suggest a weakening of this association, possibly due to increased digital adoption among less productive firms during the pandemic. Finally, our analysis indicates that larger firms, or those with a larger market share or international activities, tend to have higher levels of digitalization. Thus, investment in digitalization is recommended to enhance service sectors performance.

Suggested Citation

  • Kuosmanen, Natalia & Pajarinen, Mika & Heshmati, Almas, 2024. "An Analysis of Digitalization and Firm Performance in Finland’s Private Service Industries," ETLA Working Papers 117, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:117
    as

    Download full text from publisher

    File URL: https://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-117.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Soto Setzke & Tobias Riasanow & Markus Böhm & Helmut Krcmar, 2023. "Pathways to Digital Service Innovation: The Role of Digital Transformation Strategies in Established Organizations," Information Systems Frontiers, Springer, vol. 25(3), pages 1017-1037, June.
    2. HeeSoo Chin & Durga Prasad Marasini & DonHee Lee, 2023. "Digital transformation trends in service industries," Service Business, Springer;Pan-Pacific Business Association, vol. 17(1), pages 11-36, March.
    3. Amankwah-Amoah, Joseph & Khan, Zaheer & Wood, Geoffrey & Knight, Gary, 2021. "COVID-19 and digitalization: The great acceleration," Journal of Business Research, Elsevier, vol. 136(C), pages 602-611.
    4. Jesús Cambra-Fierro & Lily (Xuehui) Gao & Iguácel Melero-Polo & Lia Patrício, 2022. "Theories, constructs, and methodologies to study COVID-19 in the service industries," The Service Industries Journal, Taylor & Francis Journals, vol. 42(7-8), pages 551-582, June.
    5. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    6. Blichfeldt, Henrik & Faullant, Rita, 2021. "Performance effects of digital technology adoption and product & service innovation – A process-industry perspective," Technovation, Elsevier, vol. 105(C).
    7. Jin Sung Rha & Hong-Hee Lee, 2022. "Research trends in digital transformation in the service sector: a review based on network text analysis," Service Business, Springer;Pan-Pacific Business Association, vol. 16(1), pages 77-98, March.
    8. Miguel Manjón & Juan Mañez, 2016. "Production function estimation in Stata using the Ackerberg–Caves–Frazer method," Stata Journal, StataCorp LP, vol. 16(4), pages 1046-1059, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Soon Goo Hong & DonHee Lee, 2023. "Development of a citizen participation public service innovation model based on smart governance," Service Business, Springer;Pan-Pacific Business Association, vol. 17(3), pages 669-694, September.
    2. Baum, Christopher F & Lööf, Hans & Stephan, Andreas & Viklund-Ros, Ingrid, 2020. "The impact of offshoring on innovation and productivity: Evidence from Swedish manufacturing firms," Working Paper Series in Economics and Institutions of Innovation 486, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. Doungdao Mahakitsiri & Wisarut Suwanprasert, 2023. "Who are pure exporters?," The World Economy, Wiley Blackwell, vol. 46(6), pages 1759-1781, June.
    4. Baum, Christopher F & Lööf, Hans & Perez, Luis & Stephan, Andreas, 2018. "Offshoring and Innovation Capabilities: Evidence from Swedish Manufacturing," Working Paper Series in Economics and Institutions of Innovation 469, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    5. Youngho Kang, 2021. "How you pay matters: performance-related pay and learning by exporting," Empirical Economics, Springer, vol. 60(5), pages 2455-2475, May.
    6. Tran, Hien Thu, 2019. "Institutional quality and market selection in the transition to market economy," Journal of Business Venturing, Elsevier, vol. 34(5), pages 1-1.
    7. Beerli, Andreas & Weiss, Franziska J. & Zilibotti, Fabrizio & Zweimüller, Josef, 2020. "Demand forces of technical change evidence from the Chinese manufacturing industry," China Economic Review, Elsevier, vol. 60(C).
    8. Arenas Gaitán, Jorge & Ramírez-Correa, Patricio E., 2023. "COVID-19 and telemedicine: A netnography approach," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    9. Christopher F. Baum & Hans Lööf & Andreas Stephan & Ingrid Viklund-Ros, 2020. "The impact of offshoring on productivity and innovation: Evidence from Swedish manufacturing firms," Boston College Working Papers in Economics 1014, Boston College Department of Economics, revised 19 Apr 2021.
    10. Abdoulaye Kané, 2022. "Measurement of total factor productivity: Evidence from French construction firms," EconomiX Working Papers 2022-9, University of Paris Nanterre, EconomiX.
    11. Geoffrey Barrows & Hélène Ollivier & Ariell Reshef, 2023. "Production Function Estimation with Multi-Destination Firms," CESifo Working Paper Series 10716, CESifo.
    12. Kuosmanen, Natalia & Valmari, Nelli, 2023. "Renewal of Companies Through Product Switching," ETLA Working Papers 104, The Research Institute of the Finnish Economy.
    13. Ali Zackery & Joseph Amankwah-Amoah & Zahra Heidari Darani & Shiva Ghasemi, 2022. "COVID-19 Research in Business and Management: A Review and Future Research Agenda," Sustainability, MDPI, vol. 14(16), pages 1-32, August.
    14. Stefania Lovo & Gonzalo Varela, 2022. "Internationally Linked Firms and Productivity in Pakistan: A Look at the Top End of the Distribution," Journal of Development Studies, Taylor & Francis Journals, vol. 58(10), pages 2110-2131, October.
    15. V. Vandenberghe, 2018. "The Contribution of Educated Workers to Firms’ Efficiency Gains: The Key Role of Proximity to the ‘Local’ Frontier," De Economist, Springer, vol. 166(3), pages 259-283, September.
    16. David Van Dijcke, 2022. "On the Non-Identification of Revenue Production Functions," Papers 2212.04620, arXiv.org, revised May 2024.
    17. Rizvi, Syed Kumail Abbas & Rahat, Birjees & Naqvi, Bushra & Umar, Muhammad, 2024. "Revolutionizing finance: The synergy of fintech, digital adoption, and innovation," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    18. He, Zhenyu & Tang, Yuwei, 2023. "Local environmental constraints and firms’ export product quality: Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    19. Harald Dale-Olsen, 2021. "Do unions contribute to creative destruction?," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-23, December.
    20. Czarnitzki, Dirk & Fernández, Gastón P. & Rammer, Christian, 2023. "Artificial intelligence and firm-level productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 188-205.

    More about this item

    Keywords

    Digitalization; Firm performance; Productivity; Private service industry; Finland;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rif:wpaper:117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kaija Hyvönen-Rajecki (email available below). General contact details of provider: https://edirc.repec.org/data/etlaafi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.