Do CEO's long-term performance incentives induce IT investments? Theory, evidence, and industry contingencies

Abstract

Understanding the antecedents of IT investment decisions is a significant line of enquiry in the IT business value literature. Although previous research has shown a positive link between long-term performance plans and corporate decision making, the association between the use of long-term performance plans and IT investment is understudied in the extant literature. Drawing on agency theory, we posit that the existence of a long-term performance plan and a greater percentage of compensation based on long-term measures are associated with a greater percentage of IT investments to sales. We further propose that these relationships are contingent upon the nature of the industry and the IT role within the industry. Specifically, we assert that high-tech industries witness stronger associations between long-term performance plans and IT investments, while industries where IT plays a transformative role witness weaker relationships. Our empirical analysis of 173 firms in the Unites States supports our theoretical propositions.