How the Locus of Uncertainty Shapes the Influence of CEO Long-term Compensation on IT Capital Investments
By Terence Saldanha, Mariana Andrade Rojas, ABHISHEK KATHURIA, Jiban Khuntia, M.S. Krishnan
MIS Quarterly | June 2024
MIS Quarterly | June 2024
DOI
doi.org/10.25300/MISQ/2023/17433
Citation
Saldanha, Terence., Andrade Rojas, Mariana., KATHURIA, ABHISHEK., Khuntia, Jiban., Krishnan, M.S.. (2023). How the Locus of Uncertainty Shapes the Influence of CEO Long-term Compensation on IT Capital Investments MIS Quarterly doi.org/10.25300/MISQ/2023/17433.
Copyright
MIS Quarterly, 2023
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Abstract
Uncertainty in the environment and in the firm raise significant concerns for senior executives, and can influence the firm's Information Technology (IT) investments. Building on the premise that Chief Executive Officers (CEOs) play a crucial role in driving IT investment efforts, this study examines how firm-specific uncertainty and competitive uncertainty shape the influence of CEO long-term compensation on a firm’s IT investment (relative to the industry mean). Drawing on agency theory and executive compensation literature, we make three hypotheses. First, we hypothesize that CEO long-term compensation positively influences firm IT investment. Second, we hypothesize that firm-specific uncertainty and competitive uncertainty positively moderate the effect of CEO long-term compensation on firm IT investment. Third, we hypothesize that competitive uncertainty has a stronger moderating effect than firm-specific uncertainty on the influence of CEO long-term compensation on firm IT investment. Our empirical analysis using a seven-year panel dataset of over 300 firms in the United States provides support for our hypotheses. In exploratory analysis, we find that CEO long-term compensation results in a higher risk-oriented dominant logic in the firm, particularly under conditions of firm-specific uncertainty and competitive uncertainty, with competitive uncertainty having a stronger moderating effect. This finding highlights riskoriented dominant logic as a salient factor that explains how CEO long-term compensation positively influences firm IT investment. Overall, this study contributes to theory and managerial practice by uncovering how firm-specific uncertainty and competitive uncertainty shape the influence of CEO long-term compensation on a firm's IT investment.