Information Technology Investment Intensity Research Articles

CIO equity compensation and IT investment: the moderating role of board monitoring and evidence of managerial myopia

PurposeThe purpose of this paper is to examine the effects of managerial myopia on information technology (IT) investment. Specifically, it aims to investigate the influence of chief information officer (CIO) compensation on IT investment and the moderating role of the board monitoring strength on this relationship.Design/methodology/approachThe study examines a sample of 194 firms listed on US stock exchanges with a CIO position in 2019. The authors employ hierarchical regression analysis to test the hypothesis.FindingsThe results show that CIO compensation negatively influences IT investment. Further, even though vigilant board monitoring does not necessarily reduce such opportunistic behaviors, weak board monitoring creates an environment for such actions.Research limitations/implicationsFirst, the cross-sectional data can limit the results' generalizability. Second, the sampling frame is not perfectly random as it consists of firms that have CIO compensation information in the ExecuComp for 2019. Third, we include only two measures of board monitoring strength.Practical implicationsBoard of directors should wisely select compensation packages' components since equity incentives potentially exacerbate managerial myopia. Moreover, firms may regulate CIOs' investment behaviors through board-level IT governance.Originality/valueThis study is one of the few studies that utilize CIO sensitivity to measure CIO compensation. Moreover, by examining the factors affecting IT investment behavior, this study sheds light on CIO incentives' impact on IT investment behaviors. Finally, to the best of the authors' knowledge, this is the first study to investigate board monitoring's role in the relationship between CIO sensitivity and IT investment intensity.

Information Technology Investments And Aggregate Productivity

Earlier studies have shown positive and large impacts of information technology (IT) investments on aggregate products in the nascent stage. However, this causal inference may not be applicable in the adult regime with a diminishing marginal productivity. We conduct a 52 cross-country analysis on a 15 year data of IT capital stocks, rather than flows as used in the literature. Controlling for country and time effects, the empirical implications of our study are as follows: First, the IT investment intensity positively affects aggregate productivity controlling for labor, assets, and financial markets. Second, the relative contribution has decreased as the law of diminishing returns predicts. Lastly, software and services have gained more capital allocation on relative terms in exchange for less on hardware. This finding contrasts with the existing argument that the hardware-software mix is time-constant due to substitution.

Information Technology and Firm Boundaries: Impact on Firm Risk and Return Performance

In this paper, we empirically investigate the impact of information technology (IT) investment on firm return and risk financial performance, emphasizing the moderating role of the firm boundary strategies of diversification and vertical integration. Our results indicate a sharp contrast between the direct and interactive effects of IT on both the return (profitability) and risk (variability of returns) dimensions. Although the direct effect of IT capital is to increase firm risk for a given level of return, we find that suitable boundary strategies can moderate the impact of IT on firm performance in a way that increases return and decreases risk, at the margin. This interaction effect is strongest in service firms, in firms with high levels of IT investment intensity, and in more recent time periods. Our results are robust to alternative proxies for firm risk, including an ex ante risk measure (variability of analysts' earnings estimates), and alternative risk-return specifications. Put together, our results provide new insights into how IT and firm boundary strategies interact to affect the risk and return performance of firms.

Effects of Institutional Pressures on Information Technology Investments: An Empirical Investigation

Information technology (IT) investments account for a significant proportion of capital budgets of most firms today. While research attention so far has been focused on if and how firms benefit from these investments, limited attention has been paid to understand what determines the IT investment levels of firms. In this study, we examine the effects of institutional pressures and firm characteristics on the IT investment levels of a firm after controlling the financial conditions of the firm. Using available data from secondary sources, we find that the IT investment intensity of a firm is positively associated with that of its competitors, suppliers, and customers. We also find that the degree of institutional shareholding is positively associated with its IT investment intensity. Our results shed light on the motives and drivers of IT investment decisions by highlighting that these decisions are influenced by both economic considerations and legitimacy considerations such as conforming to institutional norms.

IT Investment and Firm Performance in U.S. Retail Trade

We examine the relationship between investments in information technology (IT) and two measures of retail firm performance: labor productivity and productivity growth over the 1992 to 1997 period. We use untapped firm and establishment micro data from the Censuses of Retail Trade and the Assets and Expenditures Survey. We show that large firms account for most retail IT investment, employment and establishment growth. We find evidence of a significant relationship between IT investment intensity and productivity growth. We found no evidence of a similar link between IT and growth in the number of establishments operated by retail firms.

IT Investment and Firm Performance in U.S. Retail Trade

We examine the relationship between investments in information technology (IT) and two measures of retail firm performance: labor productivity and productivity growth over the 1992 to 1997 period. We use untapped firm and establishme nt micro data from the Censuses of Retail Trade and the Assets and Expenditures Survey. We show that large firms account for most retail IT investment, employment and establishment growth. We find evidence of a significant relationship between IT investment intensity and productivity growth. We found no evidence of a similar link between IT and growth in the number of establishments operated by retail firms.

Firm Size and the Information Technology Investment Intensity of Life Insurers

This article is organized around two research questions: (1) do small insurers exhibit a higher degree of information technology investment intensity (i.e., the ratio of information technology expense to total operating expense) than large insurers? and (2) to what extent dos the level of spending on information technology explain the degree of information technology investment intensity? The article offers an interpretation of the dependent and independent variables and uses data obtained from the life insurance industry. The findings on the whole indicate that small insurers spend a larger proportion of their operating expenses on information technology than do large insurers. Given the conditions prevailing in the life insurance industry, this means that large firms were not leaders in realizing the full potential of the economic benefits available. Contrary to expectations, spending more on information technology does not lead to a higher ratio of information technology expense to total operating expense. This finding is consistent with the observation by several academics and practitioners that how the technology is used and managed is of equal if not more important consideration than the level of spending.

Organizational Performance and Information Technology Investment Intensity in the Insurance Industry

In this paper, we consider whether there existed a significant and systematic relationship between firm performance and information technology investment intensity in the home office operation of 40 systems technology leaders in the life insurance industry, 1983–1986. It is hypothesized that in top performance insurance firms (1) information technology costs as a proportion of total operating costs were higher, and (2) information technology costs as a proportion of premium income were lower, than in weak performance firms. Evidence is presented that indicates that firm performance was linked to the level of information technology investment intensity.