Relationships among information technology, inventory, and profitability: An investigation of level invariance using sector level data

Abstract Researchers studying multi‐level theories use homologous models to represent parallel nomological networks among similar constructs across different levels of analysis. We use the logic underlying homologous models to examine whether relationships established at the firm level of data aggregation are also evident at the economic sector level. Specifically, we investigate the process‐model which posits that the relationship between IT investment and financial performance is mediated by operational performance, albeit in the manufacturing sector using firm level data. We examine the process‐model using publicly available sector level data from 1960 to 1999 in the manufacturing, retail and wholesale sectors of the U.S. economy. Our results provide strong support for the process‐model and highlight inter‐sector variations, suggesting that different contextual factors may be at play in the three sectors. Finally, examining the process‐model at a higher level of aggregation contributes to the scant multi‐level empirical research.