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

Serdar Turedi and Asligul Erkan-Barlow

Review of Behavioral Finance, 2022, vol. 15, issue 6, 916-934

Abstract: Purpose - The 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/approach - The 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. Findings - The 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/implications - First, 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 implications - Board 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/value - This 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.

Keywords: IT investment; CIO compensation; Board monitoring; Agency theory (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-04-2022-0118

DOI: 10.1108/RBF-04-2022-0118

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