CEO Incentives and Information Technology Investments: An Empirical Investigation

As digitization plays an increasingly important role in business success, CEOs are increasingly responsible for the digital strategy of their firms. However, limited studies have explored the antecedents of IT investment, an important aspect of a firm’s digital strategy. Drawing on the behavioral agency theory, we propose that CEO incentives are key drivers of IT investment, and each equity pay element of a CEOs has a different effect on IT investment. Analyzing longitudinal data of 477 U.S. firms from 1999 to 2006, we find that stock option granted is positively related to IT overinvestment, but restricted stock granted is negatively related to IT overinvestment. Furthermore, we posit and find that the effect of CEO incentives on IT overinvestment is contingent upon firm slack. Our results show that firm slack positively moderates the relationship between stock option granted and IT overinvestment, but negatively moderates the relationship between restricted stock granted and IT overinvestment. We discuss the theoretical and practical implications of our findings and draw guidelines for future research.