Seeking Value Through Deviation? Economic Impacts of IT Overinvestment and Underinvestment
Joanna Ho, Feng Tian, Anne Wu, Sean Xin Xu
Information Systems Research · 2017 · Volume 28 · Issue 4
Abstract
This study addresses the economic impacts of information technology (IT) overinvestment and underinvestment decisions. Based on the view of Red Queen competition in conjunction with institutional theory, we hypothesize that overinvestment and underinvestment in IT have nonlinear performance impacts. Drawing on the idea of management control mechanisms, we further hypothesize that the performance impacts are conditional on ownership concentration. Using a sample of S&P 500 firms, we find that, on average, there is a positive relationship between a firm’s overinvestment in IT and Tobin’s q , although that relationship attenuates at higher levels of overinvestment. However, there is, on average, no relationship between a firm’s underinvestment in IT and its Tobin’s q . Importantly, the payoff for underinvestment becomes positive for companies with founding-family ownership. Implications for research and practice are discussed. The online appendix is available at https://doi.org/10.1287/isre.2017.0710 .
Keywords
IT investment, firm performance, deviation, overinvestment, underinvestment, Red Queen, concentrated ownership
Enable JavaScript for citation tools and additional paper interactions.