Do Strategy and Timing in IT Security Investments Matter? An Empirical Investigation of the Alignment Effect

Abstract

Firms have increasingly invested in information technology (IT) security to protect their information resources. Nevertheless, deciding when to invest in IT security is rather difficult for executives because of the irreversibility of spending and uncertainty of IT security investments performance. A review of the literature on IT security investments reveals that previous studies largely neglected the strategy and timing of investments. Basing on real options theory, this research examines IT security investments for the commercial exploitation strategy versus the IT security improvement strategy in terms of proactive and reactive investments. An event methodology is used to estimate the effect of IT security investment timing on the stock performance of the investments. Our results show that reactive investments for IT security improvement and proactive investments for commercial exploitation earn positive abnormal returns. Moreover, the market reacts more positively to aligned than misaligned IT security investments. The implications of the research findings are presented and discussed.