Information Systems Management

ISSN: 1058-0530 (Print) 1934-8703 (Online) Journal homepage: https://www.tandfonline.com/loi/uism20

The Interactive Effect of Board Monitoring and

Chief Information Officer Presence on Information
Technology Investment

Serdar Turedi

To cite this article: Serdar Turedi (2019): The Interactive Effect of Board Monitoring and Chief
Information Officer Presence on Information Technology Investment, Information Systems
Management, DOI: 10.1080/10580530.2019.1696589

To link to this article: https://doi.org/10.1080/10580530.2019.1696589

Published online: 02 Dec 2019.

Submit your article to this journal

Article views: 9

View related articles

View Crossmark data

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=uism20
INFORMATION SYSTEMS MANAGEMENT
https://doi.org/10.1080/10580530.2019.1696589

The Interactive Effect of Board Monitoring and Chief Information Officer

Presence on Information Technology Investment
Serdar Turedi
Quantitative Business Studies, Purdue University Northwest, Hammond, Indiana, USA

ABSTRACT KEYWORDS
We investigate the impact of board monitoring on information technology (IT) investment, and IT investment; CIO presence;
the chief information officer (CIO) presence’ role on this relationship. We argue that firms with board monitoring; CEO
a vigilant board of directors will devote greater funds to IT. The results indicate that the outside duality; agency theory
directors’ ratio positively influences IT investment, but the chief executive officer duality nega-
tively influences it. Further, the CIO presence weakens the relationship between the outside
directors’ ratio and IT investment.

Introduction shareholder as these investments will result in higher

firm performance. However, top managers can oppor-
Firms increasingly invest and rely on information tech-
tunistically cut IT investment budget and instead invest
nology (IT) to manage their daily routine business pro-
in initiatives that yield returns in less time. Therefore,
cesses. IT-enabled business processes are expected to have
we argue that the interests of top managers and share-
a significant impact on firm performance. Thus, the rela-
holders can also be substantially different in terms of
tionship between IT investment and firm performance
the optimum level of IT investment. Consequently, IT
has been widely discussed in the literature (Bharadwaj,
investment decisions can be subject to agency pro-
2000; Lee & Kim, 2006; Lee, Randall, Hu, & Wu, 2014).
blems. While prior studies show that certain decisions
Prior studies show that IT investment positively affects
like chief executive officer (CEO) compensation deci-
the performance and market value of firms (Bharadwaj,
sions (Bebchuk & Fried, 2003), the anti-takeover prac-
2000; Chatterjee, Pacini, & Sambamurthy, 2002; Dos
tices (Sundaramurthy, 1996), research and development
Santos, Peffers, & Mauer, 1993; Im, Dow, & Grover,
(R&D) investment strategy (Kor, 2006), and unrelated
2001; Kohli, Devaraj, & Ow, 2012; Lee et al., 2014).
diversification strategy (Deutsch, 2005; Kim, Al-
Further, effective IT governance, which is the responsi-
Shammari, Kim, & Lee, 2009) are subject to agency
bilities of the board of directors and top managers of
problems, the effect of agency problems on firms’ IT
a firm to ensure business value creation from IT invest-
investment decisions is less recognized in the literature.
ment, increases performance of firms (Devece, Palacios-
Understanding the impact of the agency problem is
Marqués, Galindo-Martín, & Llopis-Albert, 2017; Turel,
important not only because it can inform the theory,
Liu, & Bart, 2017; Zhang, Zhao, & Kumar, 2016).
but also because it can give firms insights about how to
However, IT investment may require substantial funds
overcome this problem to drive more value from their
and the literature on “IT productivity paradox” empha-
IT investment. Thus, drawing from the agency theory
sizes that IT investment without other necessary compo-
(Fama & Jensen, 1983), this research suggests that the
nents will not lead to sustainable performance
board of directors, through their monitoring role, can
improvement (Devece et al., 2017; Lee et al., 2014).
alleviate the agency problem.
Additionally, studies show that there is a lag between IT
Given the role of top managers in substantially
investment and realization of its benefits (Cline &
influencing IT investment decisions of firms
Guynes, 2001; Lee & Kim, 2006). This means that firms
(Ravichandran, Liu, Han, & Hasan, 2009), this study
realize the returns of investments in the long-term.
examines whether the presence of a chief information
The literature mentioned above implies that invest-
officer (CIO) in a firm affects the relationship between
ments in IT will be positively evaluated by the firm’s
board monitoring and IT investment. Even though

CONTACT Serdar Turedi sturedi@purdue.edu Quantitative Business Studies, Purdue University Northwest, Hammond, IN
Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/uism.
© 2019 Taylor & Francis
2 S. TUREDI
previous literature argues that CIOs can facilitate the
execution of IT strategies that positively contribute to
the firm’s IT capacity (Earl, 1996), recent research on
the influence of CEOs on board members and man-
agers show that the board members and managers of
a firm may engage in ingratiation (Westphal & Stern,
2007) or deference behaviors (Paredes, 2005). These
results show that the CIO may also act opportunisti-
cally and fail to encourage the managers for higher
levels of IT investment in firms. In line with the litera-
ture, this study argues that the CIO of a firm can defer
to the CEO or validate every idea of the CEO in an
attempt to advance his/her career. For example, to the
extent that the CIO of the firm approves or fails to
challenge strategic decisions made by the CEO, the
CEO can return the favor by appointing the CIO to
the board of directors of other firms that the CEO
serves on the nominating committee (Westphal &
Stern, 2007).
To summarize, there is a lack of research in the
literature that investigates the interactive effects of
board monitoring and CIO presence on IT investment
decisions. To address this gap, we examine the follow-
ing research questions:
(1) How does board monitoring influence firms’
IT investment?
(2) How does the presence of the CIO in a firm
moderate the relationship between board mon-
itoring and IT investment?
This study uses a random sample of 177 U.S and
Canadian public firms to address these research ques-
tions. We use outside directors’ ratio and CEO duality
as the indicators of the board monitoring (Finkelstein,
Hambrick, & Cannella, 2009; Platt & Platt, 2012) and
IT investment intensity, which refers to the extent to
which firms devote their financial resources to IT-
related activities (Bardhan, Krishnan, & Lin, 2013),
to investigate the effects of board monitoring on IT
investment. The results of this study make two sig-
nificant contributions to the IT literature. First, by
testing the role of board monitoring on IT invest-
ment, we seek to extend the literature on IT invest-
ment decisions through an examination of whether
these decisions are subject to agency
problems. Second, by examining the role of the pre-
sence of a CIO in a firm on the relationship between
board monitoring and IT investment, we attempt to
shed light on IT-related benefits of firms from having
a CIO position.
The remainder of the current study is organized as
follows. First, we provide a theoretical background of
the study and develop the hypotheses. Second, in the
methods section, the data collection procedure research
methodology and are introduced. The subsequent sec-
tions of the methods section describe the measures for
the dependent, independent and control variables and
summarize the empirical findings. Finally, in the dis-
cussion section, we provide an overview, theoretical
and managerial implications and limitations of the
results, and suggest future lines of research in the dis-
cussion section.
Theoretical background
IT investment & agency theory
The separation of ownership and control in large public
firms has led principals (owners) to hire agents (top
managers) for performing a service on the principals’
behalf (Berle & Means, 1932). When firms grow, the
information asymmetries that exist between firm own-
ers and top managers increases (Berle & Means, 1932;
Deutsch, 2005). This information asymmetry, in turn,
provides an incentive for top managers to engage in
actions that may not necessarily benefit the owners.
The divergence of interests between top managers and
owners constitutes an agency problem (Fama & Jensen,
1983). When agents make a decision that runs counter
to the interests of the principals, an agency problem
occurs. The agency problem leads to agency costs, such
as the cost related to the strategies to enhance the
personal wealth of agents and minimize their risk of
employment at the expense of principal wealth max-
imization (Fama & Jensen, 1983). Although previous
studies indicate that CEO compensation decisions
(Bebchuk & Fried, 2003), unrelated diversification
strategy (Kim et al., 2009), the antitakeover practices
(Sundaramurthy, 1996), and R&D investment decisions
(Kor, 2006) are subject to agency problems, the IT
literature is silent on the extent of agency problems in
the context of IT investment.
IT investment is a type of capital investment that
firms make to increase future returns. Prior studies
associate IT investment with several positive organiza-
tional outcomes like higher levels of productivity (Cline
& Guynes, 2001), higher firm value (Kohli et al., 2012),
and higher firm performance (Mithas, Tafti, Bardhan,
& Goh, 2012). Thus, it is expected that shareholders
will favor IT investment. Four studies provide evidence
for this expectation. First, Dos Santos et al. (1993)
illustrate that the stock market positively responds to
innovative IT investment announcements for the per-
iod from 1981 to 1988. Similarly, Im et al. (2001) find
that the market value of firms increases in response to

IT investment announcements for the period covering
1991 to 1996. Chatterjee et al. (2002) report a link
between IT infrastructure investment announcements
and abnormal stock returns for the period from 1992 to
1995. Finally, Kohli et al. (2012) provide evidence that
IT investment positively influences firms’ Tobin’s Q.
Although the above discussion suggests that share-
holders benefit from IT investment, the interests of top
managers, who are the main determinants of the IT
budget (Ravichandran et al., 2009), may deviate from
shareholders’ interests. Previous literature on the rela-
tionship between IT investment and firm performance
have found contradicting results (Yao, Liu, & Chan,
2010). These contradicting results, commonly known
as the “IT productivity paradox” have led scholars to
a decades-long debate to understand the business value
of IT investment. Even though recent research on this
subject has proven the positive influence of IT invest-
ment on firm performance (e.g., Bardhan et al., 2013),
top managers still question the business value of IT.
Further, while IT investment is costly, firms realize the
potential returns from these investments in the long-
term (Cline & Guynes, 2001; Lee & Kim, 2006). The
fact that IT investment pays off only in the long-term
might discourage top managers from investing in such
initiatives since the board of directors typically uses
firm performance as a proxy for the effectiveness of
the top managers (Walsh & Seward, 1990). Hence,
managers might choose to devote firms’ resources to
initiatives that are more likely to yield positive organi-
zational outcomes in the short-term.
The authors argue that if IT investment is subject to
agency problems, then the board of directors could help
align the interests of top managers (agents) and share-
holders (principles) in the IT investment context. In
other words, top managers will be less likely to under-
invest in IT when the board of directors vigilantly
monitors them. Several governance mechanisms,
which can align the interests of top managers and
shareholders, exist to alleviate these agency problems
(Fama & Jensen, 1983). One of these governance
mechanisms is board monitoring. Consistent with the
existing literature (e.g., Boyd, 1994), this study defines
board monitoring as the extent to which directors con-
trol management decisions on behalf of shareholders to
curb managers’ opportunistic behaviors. The literature
on corporate governance states that boards of directors
that are dominated by outside directors vigilantly
monitor top managers (Dalton, Hitt, Certo, & Dalton,
2007; Finkelstein et al., 2009). For example, Platt and
Platt (2012) show that firms avoid bankruptcy as the
outside directors’ ratio on the board of directors
increases. Outside directors are non-employee board
INFORMATION SYSTEMS MANAGEMENT 3
members of a firm, who do not have business ties to
that firm and do not hold a position in the firm that
may cause them to ingratiate themselves to the man-
agement (Kroll, Walters, & Wright, 2008). In contrast,
inside directors are defined as the employees of the firm
and work for the CEO. Agency theory suggests that
outside directors should be better suited to monitor
and, if necessary, challenge or even dismiss the CEO
than inside directors (Fama & Jensen, 1983), as inside
directors are unlikely to challenge or question the
CEO’s position on the issue in board meetings
(Deutsch, 2005).
Board-level IT governance, which refers to the board
of directors’ actions to sustain and extend the IT func-
tion (Turel & Bart, 2014), is a vital driver of firm
performance (Turel & Bart, 2014; Turel et al., 2017;
Zhang et al., 2016), as effective board-level IT govern-
ance can increase IT investment. Boards of directors
that have a higher ratio of outside directors are more
likely to have an effective board-level IT governance
and push top managers to act in the best interests of
shareholders by encouraging them to invest in long-
term initiatives such as IT function. Hence, a higher
number of outside directors in a board of directors can
increase the IT investment of the firm. Consistent with
this argument and drawing from the agency theory, we
argue that boards of directors dominated by outside
directors can protect the interests of shareholders by
reminding top managers to invest in IT function or by
disapproving any cuts to the IT budget. Therefore, this
study hypothesizes that:
Hypothesis 1: Ratio of outside directors in a firm’s
board of directors positively influences the firm’s IT
investment intensity.
The literature on corporate governance also suggests
that board leadership structure, in addition to the outside
director’s ratio, significantly influences board monitoring
(Dalton et al., 2007; Finkelstein et al., 2009). Specifically,
when the CEO also serves as the board chairperson, CEO
duality exists. CEO duality decreases the chance of board
members challenging the CEO (Finkelstein & D’Aveni,
1994) and gives the CEO increased levels of authority and
power over the board of directors (Westphal & Zajac,
1997). Therefore, CEO duality indicates a higher CEO
power vis-à-vis the board of directors (Boyd, 1994).
Such power imbalance, in turn, results in a reduced prob-
ability that the board of directors will effectively monitor
the CEO (Finkelstein & D’Aveni, 1994). Consistent with
these arguments, the literature illustrates that agency pro-
blems such as unrelated diversification (Kim et al., 2009),
high CEO compensation (Boyd, 1994), and suboptimal
4 S. TUREDI
risk-taking (Deutsch, 2005) are more likely in the pre-
sence of CEO duality. Thus, the CEO duality structure
may increase the likelihood that the CEO will escape the
board monitoring efforts in the IT investment context.
For example, when the CEO is the chairperson of the
board of directors, he or she can divert the attention of
the board of directors away from IT investment by chan-
ging the board meeting agenda (Lorsch & Maclver, 1989).
Hence, we hypothesize that:
Hypothesis 2: Existence of CEO duality in a firm nega-
tively influences firm’s IT investment intensity.
Role of the chief information officer
Even though IT investment intensity will be higher for
firms whose board of directors is more vigilant in the
monitoring role, some factors may moderate the
strength of this relationship. The presence of the CIO
in a firm is one such factor. Each firm places different
emphasis on the IT function, and presence of a CIO is
one structural indication of a firm putting more
emphasis on it (Earl, 1996). Moreover, prior studies
suggest that when firms align their business strategies
with CIO characteristics (Li & Tan, 2013) and reporting
structure (Banker, Hu, Pavlou, & Luftman, 2011), they
realize higher firm performance. Therefore, CIO pre-
sence should have a positive and direct impact on IT
investment. However, this direct relationship is not the
focus of this research. Instead, we argue that the CIO
presence will interact with the board monitoring role to
affect the firm’s IT investment intensity. When board
monitoring is high, CEOs seek ways to avoid board
monitoring (Walsh & Seward, 1990) because high levels
of board monitoring can increase the dismissal like-
lihood of a CEO (Finkelstein et al., 2009). CEOs can
engage in subtle tactics such as directing the board of
directors’ attention to other issues (Lorsch & Maclver,
1989) or using their interpersonal influence on board
members (Westphal, 1998) to escape high levels of
board monitoring. Thus, we argue that when board
monitoring increases, CEOs can use their structural
power to co-opt CIOs as an alternative means to escape
board monitoring.
Previous studies argue that top managers may
engage in ingratiation behaviors or defer to CEOs
(Paredes, 2005; Westphal & Stern, 2007) since CEOs
have the highest authority in a firm and control access
to significant job opportunities. Therefore, CIOs may
act opportunistically for their career prospects and fail
to monitor whether their firms devote enough funds to
IT to ensure sustainable competitive advantage. The
lack of monitoring helps CEOs escape board
monitoring since CIOs can convince the board of direc-
tors that CEOs act in the best interests of shareholders
regarding IT initiatives. Hence, we argue that as board
monitoring increases, CIOs may support the policies
proposed by CEOs, such as a decrease in IT investment.
Since CIOs’ support gives such decisions a legitimacy,
this supportive relationship between CEOs and CIOs
would reduce the monitoring role of the board of
directors. On the other hand, when firms do not have
CIOs, CEOs are less likely to have someone who can
justify their IT investment decisions to the board of
directors. In line with this argument, this paper sug-
gests that board monitoring in firms that do not have
a CIO can influence IT investment intensity stronger
than in firms that have a CIO.
In short, the above discussion suggests that the rela-
tionship between board monitoring and IT investment
intensity is weaker when firms have a CIO position
rather than when they do not have a CIO position.
For example, although board monitoring increases as
a function of a higher outside directors’ ratio, the CIO
is more likely to protect the interests of the CEO
instead of the shareholders. Similarly, when the CEO
also serves as the board chairperson, CEO-chairs can
use their greater structural power to reward the CIO
with career advancement opportunities. This dynamic
increases the likelihood that the CIO agrees with the
CEO’s investment decisions about the IT function.
Therefore, we hypothesize that:
Hypothesis 3a: Presence of a CIO in a firm moderates
the positive relationship between the outside directors’
ratio and IT investment intensity; such that, the rela-
tionship becomes weaker when the firm has a CIO.
Hypothesis 3b: Presence of CIO in a firm moderates the
negative relationship between CEO duality and IT
investment intensity; such that the relationship
becomes stronger when the firm has a CIO.
The proposed framework is illustrated in Figure 1.
Methods
To validate the proposed hypotheses, we gather data
from large publicly traded firms with assets over
$50 million. The industry filter in the Lexis-Nexis data-
base is used to select manufacturing firms that are listed
in the American or Canadian stock exchanges from
2012, which is the most recent year that provides com-
plete information on firms’ IT budget during data
collection. We specifically focused on one industry, as
single-industry studies can eliminate the confounding

Figure 1. Proposed framework.
effects of industry-specific factors and reduce variance
in the results of the study (Finkelstein & D’Aveni, 1994;
Kohli et al., 2012; Zhu, Kraemer, & Dedrick, 2004). The
manufacturing industry is chosen for three reasons.
First, as stated by Yao et al. (2010), the manufacturing
industry has experienced the most substantial changes
in technology since the end of the 1990s. Therefore,
technology investments have become the main contri-
butor to the performance of manufacturing
firms. Second, using the same industry can enhance
the comparability of the results with other studies
(e.g., Rangan & Sengul, 2009) and contribute to better
inferences in the literature about the role of IT invest-
ment. Third, manufacturing is one of the most stable
industries in terms of IT investment intensity across the
years. Specifically, according to the IT Budget Trend
provided by InformationWeek 500, the standard devia-
tion of IT investment intensity of manufacturing firms
from 2002 to 2012 is a modest 0.002. While the metals
and natural resources and the distribution industry
have the same standard deviation across the same 11-
year time period, firms in these industries devote
a relatively lower portion of their budgets to IT
(2.08% for the manufacturing industry vs. 1.04% for
the metals and natural resource industry and 1.21% for
the distribution industry). These results suggest that the
manufacturing firms consistently devote adequate levels
of funds to IT across the years. As such, this context is
ideal for testing the hypotheses.
The original sample consists of a random sample of 177
firms, but missing data from key variables reduce the
sample size to 125 firms. To confirm the representativeness
of the sample with the population of firms, we follow two
steps. The first step is to check whether these firms are
systematically different from the original population in
terms of firm size, which is proxied by firm assets, and
profitability, which is proxied by return on assets. The
differences between the variables are insignificant at the
INFORMATION SYSTEMS MANAGEMENT 5
0.05 level of significance, which indicates that the sampled
firms are not different from the initial population of man-
ufacturing firms. The second step is to determine how the
IT investment intensity of the sampled firms – the depen-
dent variable of the study – compared with those reported
in previous studies. The results of the analysis confirmed
that the IT investment intensity of the sampled firms
(mean value of 2.3%) is similar to those of the
InformationWeek 500 average. These two steps provide
compelling evidence that the firms in the sample well
represent the population of manufacturing firms.
Measures
Dependent variable
This study calculates IT investment intensity as the
ratio of the total IT budget reported for each firm to
annual sales revenue for the respective firm in the year
2012. IT budget is gathered from the Lexis-Nexis data-
base, whereas the annual sales revenue is collected from
the Thomson-ONE database. Rather than using the IT
budget of each firm as an absolute value, this paper
chooses to standardize this measure by annual sales
revenue as IT budgets may differ widely as a function
of firm size (Cline & Guynes, 2001).
Independent variables
The current study uses the outside directors’ ratio and
CEO duality as independent variables and CIO pre-
sence as the moderator variable. In line with the prior
literature (e.g., Kroll et al., 2008), we measure outside
directors’ ratio variable as the ratio of outside directors
to the total size of the board of directors in 2012.
Furthermore, the authors code the CEO duality as 1,
if the CEO of a firm also serves as the chair of the board
of directors in 2012 and 0 otherwise (Finkelstein &
D’Aveni, 1994). Data for outside directors’ ratio, CEO
duality, and CIO variables are acquired from the
6 S. TUREDI
Bloomberg Terminal. If a firm has a c-level position for
IT such as chief technology officer (CTO) or CIO in
2012, we code the CIO presence variable as 1 and
otherwise 0.
Control variables
We include several control variables in the analysis to
rule out alternative explanations. The first control vari-
able is the CEO age. Controlling for CEO age is critical
as older CEOs may be less risk-taking in their invest-
ment behaviors (Kim et al., 2009). Second, this study
controls for board average age. Similar to CEOs, older
board members can favor less risky initiatives (Platt &
Platt, 2012). Third, we control for CEO tenure as CEOs
gain power over the board of directors over time
(Finkelstein & D’Aveni, 1994). The fourth control vari-
able is board average tenure, given that longer tenure
on the board of directors provides the board members
with higher firm-specific capital and this capital can
improve the board of directors’ monitoring effective-
ness (Westphal & Stern, 2007). Fifth, this study controls
for board size as CEOs influence on board of directors
can be related to board size (Kroll et al., 2008). Sixth,
the country of origin of firms (1 if Canada and 0 if the
U.S) is controlled to avoid the impact of any differences
between the two countries. The seventh control variable
of this study is the sub-categories of the manufacturing
industry. While this study only uses the manufacturing
industry to control the confounding effects of industry-
specific factors, there is also a significant amount of
variation between different manufacturing sectors. As
a result, two dummy variables are used to reflect the
three two-digit North American Industry Classification
System (NAICS) codes for the manufacturing industry.
Finally, we use previous firm performance, which is
measured as the average of 2010 and 2011 return on
assets (ROA), as firms with better performance in the
past may have more resources to devote to IT function.
All control variables except ROA is gathered from the
Table 1. Means, standard deviations, and correlation.
Variables Mean s.d. 1 2
1 IT Investment Intensity 2.3 2.44
2 CEO 55.9 6.32 −0.14
Age
3 CEO 5.4 6.58 0.22
Tenure
4 Board Average Age 62.2 3.23 −0.09
5 Board Average Tenure 9.1 3.88 −0.03
6 Board 10.2 2.37 −0.10
Size
7 Previous Firm Performance 4.5 8.72 0.21
8 Outside Directors’ Ratio 81.2 9.63 −0.06
*p < 0.10, **p < 0.05, ***p < 0.01.
Bloomberg terminal. The ROA measure is acquired
from the Thomson-ONE database.
Analysis & results
Table 1 shows the descriptive statistics and correlations
of the variables used in the study.
The average IT investment intensity of the sampled
firms is 2.3%, which is consistent with the results
reported in the 2012 report of InformationWeek 500.
The standard deviation is 2.44, which indicates suffi-
cient variation in the sample in terms of IT investment
intensity. An initial examination of the correlation
matrix indicates no multicollinearity problem among
the variables as the highest significant correlation (0.53)
is well below the threshold value of 0.70 (Hair,
Anderson, Tatham, & Black, 1995). While this proce-
dure shows that the multicollinearity problems are
unlikely in the model, the outside directors’ ratio is
mean centered as suggested by Aiken and West
(1991). In addition, this study examines the variance
inflation factors (VIFs) and tolerance values. The VIFs
are well below the threshold value of 10 (none of the
VIFs are above 4.88), and the tolerance values are well
above the suggested 0.10 threshold (the tolerance values
are 0.21 or larger), which shows that there are no
multicollinearity problems in the model (Hair et al.,
1995). Further, the authors examine whether the dis-
tribution of the variables violated any assumptions of
regression analysis. None of the variables except IT
investment intensity violates regression analysis
assumptions. Due to the significant level of skewness,
we use a logarithmic transformation for IT investment
intensity (Westphal & Zajac, 1997).
We test the hypotheses using a three-step hierarch-
ical regression analysis to evaluate the predictive power
of the independent variables over the control variables.
Hierarchical regression is useful for two reasons. First,
adding conceptually grouped sets of independent
3 4 5 6 7
0.47***
0.35*** 0.35***
0.26*** 0.53*** 0.40***
−0.24*** 0.20** −0.08 −0.17
0.06* −0.01 −0.03 0.02 −0.03
0.04 −0.17 −0.02 0.31*** 0.41*** −.01
 INFORMATION SYSTEMS MANAGEMENT 7

variables to the regression model allows determining is significantly and positively related to IT investment
the effect of the set of variables on the dependent intensity. These results provide support for both
variable (Weill, 1992). For example, entering a set of Hypothesis 1 and Hypothesis 2. Finally, the addition
control variables to the regression model in the first of moderating variables in the third step further
step allows researchers to determine the total effect of improves the R2 by 16%. Results show that the CIO
all control variables as well as the effects of each control presence in firms has a significant and negative effect
variable on the dependent variable. Second, hierarchical on the relationship between outside directors’ ratio and
regression is expected to produce more accurate results IT investment intensity. To interpret this result, we plot
than other methodologies when testing the models that the interaction graph as the literature suggests (Aiken &
involve a moderating relationship (Chen et al., 2014). West, 1991). Figure 2 shows that CIO presence weakens
Table 2 illustrates the results of the analyses. In the first the positive relationship between outside directors’
step of the regression analysis, we enter the control ratio and IT investment intensity. The results provide
variables. In the second step, we add two independent support for Hypothesis 3a. However, although the
variables (outside directors’ ratio and CEO duality) to impact of CIO presence on the relationship between
test the main effects. Finally, to test for the moderating CEO duality and IT investment intensity is positive, it
effect of the CIO presence in a firm, we include the is not significant at 0.1 level. Therefore, the data fail to
CIO presence and its interactions with the independent provide sufficient evidence to support Hypothesis 3b.
variables in the third step.
The first step of the regression analysis shows that
Discussion
one of the two dummy variables for the industry
(NAICS 31) has a significant relationship with IT The current study examines the role of board monitor-
investment intensity and CEO age has a partially sig- ing (measured as outside directors’ ratio and CEO
nificant relationship with IT investment intensity. On duality) on the firms’ IT investment intensity, as well
the other hand, country of origin, CEO tenure, board as the role of CIO presence on the relationship between
average age and tenure, board size, and previous firm board monitoring and IT investment intensity.
performance have no significant relationship with IT Drawing from the agency theory, we use organization-
investment intensity. The independent variables (out- level data to test the proposed model. Results of the
side directors’ ratio and CEO duality), which the research show that both measures of board monitoring
authors enter in the second step of the hierarchical have a significant impact on the IT investment of firms.
regression analysis, improve the R2 by 4%, an improve- The results also reveal that the CIO presence weakens
ment that results in a partially significant increase in the impact of outside directors’ ratio on IT investment
the F value of the model. The results indicate that CEO intensity. Contrary to the expectations, the CIO pre-
duality is significantly and negatively related to IT sence has no significant effect on the relationship
investment intensity, whereas outside directors’ ratio between CEO duality and IT investment intensity.
Thus, this research offers two important conclusions: 1)
Table 2. Hierarchical regression results. firms with vigilant board monitoring devote more
Variables Step 1 Step 2 Step 3 funds to IT, and 2) CIO presence influences the rela-
Control Variables tionship between board monitoring and IT investment
NAICS 31 −0.22** −0.19* −0.15* intensity.
NAICS 32 0.02 −0.01 0.02
Country of Origin 0.13 0.10 0.11 The board monitoring is measured by outside direc-
CEO Age −0.20* −0.16 −0.15 tors’ ratio and CEO duality. These two variables are
CEO Tenure 0.03 0.01 −0.06
Board Average Age −0.01 0.01 0.06 assumed to improve board vigilance by promoting
Board Average Tenure 0.05 0.07 0.07 board independence (Dalton et al., 2007; Finkelstein
Board Size −0.12 −0.20* −0.20*
Previous Firm Performance 0.10 0.12 0.09 & D’Aveni, 1994; Finkelstein et al., 2009). When the
Independent Variables board chairperson and CEO are separated, and there
Outside Directors’ Ratio 0.22** 0.45**
CEO Duality −0.24** −0.29** are enough outside directors to guarantee board inde-
Moderating Variables pendence, the board is more likely to protect share-
CIO 0.36**
Outside Directors’ Ratio *CIO −0.30** holders’ interests and encourage top managers to
Duality*CIO 0.01
Adjusted R2 0.03 0.07 0.23
devote more funds to long-term investments rather
ΔR2 0.04 0.16 than the short-term investments.
F 1.38 1.79* 3.58***
ΔF 0.41 1.69 The results of this study also suggest that the pre-
Maximum VIF 1.70 1.88 4.88 sence of a CIO position in organizations affects the
*p < 0.10, **p < 0.05, ***p < 0.01. influence of board monitoring on IT investment
8 S. TUREDI
Figure 2. Outside directors’ ratio and IT investment intensity interaction.
intensity. One can argue that when board monitoring
increases, CIOs may use their structural power to push
other top managers to devote enough funds to IT such
that these investments can benefit the firm in the long
run. For example, the CIO might be more likely to
remind other top managers the critical role played by
IT in strategic organizational outcomes as a response to
increasing levels of board monitoring (Li & Tan, 2013).
Nevertheless, recent research reports that the structural
power is necessary, but not a sufficient condition, for
organizational agents to perform their duties. That is,
as self-motivated agents, top managers tend to support
the CEO. Hence, top managers might rubber stamp
every decision of CEOs to maintain an amicable rela-
tionship with them (Paredes, 2005; Westphal & Stern,
2007). In the context of IT investment, the CIO might
feel uncomfortable challenging the decision of the CEO
because the CEO has the power to impact the CIO’s
career prospects. In other words, CIOs might be agents
in their own right and might even intensify agency
problems.
The results show that the CIO presence weakens
the impact of outside directors’ ratio on IT invest-
ment, but they do not provide any support for the
moderating effect of the CIO presence on the rela-
tionship between CEO duality and IT investment
intensity. One explanation is related to the interac-
tion between different control mechanisms. The lit-
erature on corporate governance suggests various
other control mechanisms like shareholdings of insti-
tutional investors, equity holdings of top manage-
ment teams and board members (Boyd, 1994), the
market for corporate control (Walsh & Seward,
1990), and firm debt (Deutsch, 2005). How these
control mechanisms interact with each other and
impact firm outcomes, while widely studied, are not
well understood in the literature (Rediker & Seth,
1995). When such mechanisms are involved, the
influence of CEO duality may be negligible. In
other words, other mechanisms may, either indepen-
dently or interactively, impede the likelihood of
opportunism by CEO duality.
Theoretical and managerial implications
This study offers important theoretical contributions.
First, the significant relationship between board mon-
itoring and IT investment intensity reported in this
study provides evidence that IT investment decisions
of firms are subject to agency problems. How agency
problem does affect managerial decisions like R&D
investment strategy, unrelated diversification strategy,
the anti-takeover practices, and CEO compensation
have been investigated in the literature (Bebchuk &
Fried, 2003; Deutsch, 2005; Kim et al., 2009; Kor,
2006; Sundaramurthy, 1996). However, the role of
agency problem on IT investment decisions is
unknown. This study extends the agency theory by
confirming the role of agency problem on IT invest-
ment decisions. Second, the role of CIO presence on
the relationship between outside directors’ ratio and IT
investment intensity offers empirical support for an
informal organization – a topic that attracted research
attention from both information systems (e.g., Li &
Tan, 2013), and strategic management scholars (e.g.,
Gulati & Puranam, 2009). Specifically, although much
of the literature on organization theory focuses on the
role of formal structural characteristics within firms

(e.g., Finkelstein, 1992), the results demonstrate that
the existence of the CIO may not necessarily give the
CIO more power over other top managers. Thus, rather
than focusing merely on formal structures at the top of
the companies, future research can examine informal
relationships and power dynamics among top
managers.
The findings of this study have several important
managerial impacts as well. First, the practical implica-
tion of a positive association between board monitoring
and IT investment is that companies can strategically
manage their IT investment through board-level IT
governance. Specifically, the number of outside direc-
tors on the board is vital for allocating more funds to
IT. Organizations should have more outside directors
than inside directors on their boards to ensure the
board of directors control management decisions on
behalf of shareholders and protect their interests as
the higher outside directors’ ratio in the board will
lead to vigilant board monitoring. Additionally, firms
should avoid appointing CEOs as the board chairper-
son as much as possible, because simultaneously ser-
ving as the CEO and chairperson of the board will
increase the CEOs’ power over the board of directors
and allow CEOs to escape from the board
monitoring. Second, based on our findings, CIO
appointments should be treated carefully. The presence
of a CIO is perceived as an indication of how much
a firm values IT function. Prior research shows that the
collaboration between CIO and top managers (Turel &
Bart, 2014), characteristics of the CIO (Li & Tan, 2013),
and CIO reporting structure (Banker et al., 2011) are
key determinants of strategic alignment, which pro-
vides structural power for the CIO. However, the prac-
tical implications of this study show that structural
power is not enough for CIOs to act on behalf of the
shareholders’ interests. The CEO may encourage the
CIO to act opportunistically. Hence, firms need to
ensure that appointed CIOs will protect the share-
holders’ interests, not the CEO. One way to accomplish
this might be having the right mix of CIO compensa-
tion package.
Limitations & future research
Despite the encouraging findings of the current study,
it has certain limitations and opportunities for future
research. First, we use only the manufacturing industry
to test the hypotheses. Hence, the results might not be
generalizable to other industries. Although single
industry studies can threaten a study’s external validity,
this study follows the lead of previous studies (Rangan
& Sengul, 2009) to sample firms from the
INFORMATION SYSTEMS MANAGEMENT 9
manufacturing industry. In addition, this setting
might provide a conservative test of the hypotheses; if
one can obtain significant results in an industry where
IT investment is not very critical for the survival of
firms, researchers can obtain stronger effect sizes in
other industries where IT investment is more critical
for the survival of firms (e.g., computer hardware).
Therefore, future research should replicate the pro-
posed framework in this study in other industries to
improve the generalizability of the results. Second, the
cross-sectional nature of the data can limit the general-
izability of the findings. Longitudinal data can provide
deeper insight into how board monitoring can influ-
ence firms’ IT investment over time. Thus, conducting
a longitudinal study would be an interesting extension
of this paper, as both board monitoring and IT invest-
ment intensity should fluctuate as a function of time.
Third, the sample consists of large publicly traded firms
whose assets were over $50 million in value. Whether
the results reported in this study are generalizable to
smaller firms is an empirical question for future study.
CEO discretion can be a useful construct to guide
future researchers in explaining how firm size influ-
ences the findings. Specifically, CEO discretion can be
greater in smaller than in larger firms, and as such,
board monitoring can have a weaker impact on IT
investment decisions of small firms than on large
firms’ decisions.
Conclusion
Previous studies have demonstrated that most of the
managerial decisions are subject to agency problems,
and board monitoring is one solution to such
a problem. Still, how board monitoring affects IT
investment decisions is not well known.
Furthermore, the role of the presence of a CIO posi-
tion in a firm and its impact on the relationship
between board monitoring and IT investment deci-
sions of that firm is not explored in the literature.
Therefore, our study adds to this stream of research
by theorizing and empirically examining the role of
the board monitoring on the firms’ IT investment
intensity, as well as the role of CIO presence on the
relationship between board monitoring and IT
investment intensity. The findings of this research
provide strong support for the proposition that IT
investment decisions of companies are indeed subject
to agency problems by showing both measures of
board monitoring have a significant impact on the
IT investment of firms. We also find that the CIO
presence weakens the impact of outside directors’
ratio on IT investment intensity, but it has no
10 S. TUREDI
significant effect on the relationship between CEO
duality and IT investment intensity. It is therefore
hoped that the results presented here will stimulate
new directions in research on the influence of board-
level IT governance and the CIO presence on IT
investment decisions.
Notes on contributor
Serdar Turedi holds a Ph.D. from the Old Dominion
University and he is an assistant professor of business analy-
tics at the Purdue University Northwest. His main research
areas include the business value of information technology
(IT), Enterprise Resource Planning (ERP) systems and user
emotions, business analytics, and project management. His
research has been published in highly regarded academic
journals such journals as Communications of the
Association for Information Systems (CAIS). He brings
expertise on strategic management of IT and hierarchical
regression analysis into the project.
References
Aiken, L. S., & West, S. G. (1991). Multiple regression: Testing
and interpreting interactions. Thousand Oaks, CA: Sage
Publications.
Banker, R. D., Hu, N., Pavlou, P. A., & Luftman, J. (2011).
CIO reporting structure, strategic positioning, and firm
performance. MIS Quarterly, 35(2), 487–504. doi:10.2307/
23044053
Bardhan, I., Krishnan, V., & Lin, S. (2013). Business value of
information technology: Testing the interaction effect of IT
and R&D on Tobin’s Q. Information Systems Research, 24
(4), 1147–1161. doi:10.1287/isre.2013.0481
Bebchuk, L. A., & Fried, J. M. (2003). Executive compensa-
tion as an agency problem. Journal of Economic
Perspectives, 17(3), 71–92. doi:10.1257/
089533003769204362
Berle, A. A., & Means, G. G. C. (1932). The modern corpora-
tion and private property. New Brunswick, NJ: Transaction
Publishers.
Bharadwaj, A. S. (2000). A resource-based perspective on
information technology capability and firm performance:
An empirical investigation. MIS Quarterly, 24(1), 169–196.
doi:10.2307/3250983
Boyd, B. K. (1994). Board control and CEO compensation.
Strategic Management Journal, 15(5), 335–344.
doi:10.1002/(ISSN)1097-0266
Chatterjee, D., Pacini, C., & Sambamurthy, V. (2002). The
shareholder-wealth and trading-volume effects of
information-technology infrastructure investments.
Journal of Management Information Systems, 19(2), 7–42.
doi:10.1080/07421222.2002.11045723
Chen, Y., Wang, Y., Nevo, S., Jin, J., Wang, L., & Chow, W. S.
(2014). IT capability and organizational performance: The
roles of business process agility and environmental factors.
European Journal of Information Systems, 23(3), 326–342.
doi:10.1057/ejis.2013.4
Cline, M. K., & Guynes, C. S. (2001). The impact of informa-
tion technology investment on enterprise performance:
A case study. Information Systems Management, 18(4),
70–76. doi:10.1201/1078/43198.18.4.20010901/31467.8
Dalton, D. R., Hitt, M. A., Certo, S. T., & Dalton, C. M.
(2007). The fundamental agency problem and its mitiga-
tion: Independence, equity, and the market for corporate
control. The Academy of Management Annals, 1(1), 1–64.
doi:10.5465/078559806
Deutsch, Y. (2005). The impact of board composition on
firms’ critical decisions: A meta-analytic review. Journal
of Management, 31(3), 424–444. doi:10.1177/
0149206304272185
Devece, C., Palacios-Marqués, D., Galindo-Martín, M.-Á., &
Llopis-Albert, C. (2017). Information systems strategy and
its relationship with innovation differentiation and orga-
nizational performance. Information Systems Management,
34(3), 250–264. doi:10.1080/10580530.2017.1330002
Dos Santos, B. L., Peffers, K., & Mauer, D. C. (1993). The
impact of information technology investment announce-
ments on the market value of the firm. Information
Systems Research, 4(1), 1–23. doi:10.1287/isre.4.1.1
Earl, M. J. (1996). The chief information officer: Past, present
and future. In M. J. Earl (Ed.), Information & management:
The organizational dimension (pp. 456–484). New York,
NY: Oxford University Press.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership
and control. Journal of Law and Economics, 26(2),
301–325. doi:10.1086/467037
Finkelstein, S. (1992). Power in top management teams:
Dimensions, measurement, and validation. Academy of
Management Journal, 35(3), 505–538.
Finkelstein, S., & D’Aveni, R. A. (1994). CEO duality as a
double-edged sword: How boards of directors balance
entrenchment avoidance and unity of command.
Academy of Management Journal, 37(5), 1079–1108.
Finkelstein, S., Hambrick, D. C., & Cannella, A. A. (2009).
Strategic leadership: Theory and research on executives, top
management teams, and boards. New York, NY: Oxford
University Press.
Gulati, R., & Puranam, P. (2009). Renewal through reorgani-
zation: The value of inconsistencies between formal and
informal organization. Organization Science, 20(2),
422–440. doi:10.1287/orsc.1090.0421
Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C.
(1995). Multivariate data analysis with readings. Upper
Saddle River, NJ: Prentice Hall.
Im, K. S., Dow, K. E., & Grover, V. (2001). Research report:
A reexamination of IT investment and the market value of
the firm—An event study methodology. Information
Systems Research, 12(1), 103–117. doi:10.1287/
isre.12.1.103.9718
Kim, K.-H., Al-Shammari, H. A., Kim, B., & Lee, S.-H.
(2009). CEO duality leadership and corporate diversifica-
tion behavior. Journal of Business Research, 62(11),
1173–1180. doi:10.1016/j.jbusres.2008.10.017
Kohli, R., Devaraj, S., & Ow, T. T. (2012). Does information
technology investment influence a firm’s market value?
A case of non-publicly traded healthcare firms. MIS
Quarterly, 36(4), 1145–1163. doi:10.2307/41703502

Kor, Y. Y. (2006). Direct and interaction effects of top manage-
ment team and board compositions on R&D investment strat-
egy. Strategic Management Journal, 27(11), 1081–1099.
doi:10.1002/smj.554
Kroll, M., Walters, B. A., & Wright, P. (2008). Board vigi-
lance, director experience, and corporate outcomes.
Strategic Management Journal, 29(4), 363–382.
doi:10.1002/(ISSN)1097-0266
Lee, J. J.-Y., Randall, T., Hu, P. J.-H., & Wu, A. (2014).
Examining complementary effects of IT investment on
firm profitability: Are complementarities the missing
link? Information Systems Management, 31(4), 340–352.
doi:10.1080/10580530.2014.958342
Lee, S., & Kim, S. H. (2006). A lag effect of IT investment on
firm performance. Information Resources Management
Journal, 19(1), 43–69. doi:10.4018/IRMJ
Li, Y., & Tan, C.-H. (2013). Matching business strategy and
CIO characteristics: The impact on organizational
performance. Journal of Business Research, 66(2),
248–259. doi:10.1016/j.jbusres.2012.07.017
Lorsch, J. W., & Maclver, E. (1989). Pawns or potentates: The
reality of America’s corporate boards. Boston, MA: Harvard
Business School Press.
Mithas, S., Tafti, A., Bardhan, I., & Goh, J. M. (2012).
Information technology and firm profitability:
Mechanisms and empirical evidence. MIS Quarterly, 36
(1), 205–224. doi:10.2307/41410414
Paredes, T. A. (2005). Too much pay, too much deference:
Behavioral corporate finance, CEOs, and corporate
governance. Florida State University Law Review, 32(2),
673–762.
Platt, H., & Platt, M. (2012). Corporate board attributes and
bankruptcy. Journal of Business Research, 65(8),
1139–1143. doi:10.1016/j.jbusres.2011.08.003
Rangan, S., & Sengul, M. (2009). Information technology and
transnational integration: Theory and evidence on the
evolution of the modern multinational enterprise. Journal
of International Business Studies, 40(9), 1496–1514.
doi:10.1057/jibs.2009.55
Ravichandran, T., Liu, Y., Han, S., & Hasan, I. (2009).
Diversification and firm performance: Exploring the mod-
erating effects of information technology spending. Journal
of Management Information Systems, 25(4), 205–240.
doi:10.2753/MIS0742-1222250407
Rediker, K. J., & Seth, A. (1995). Boards of directors and
substitution effects of alternative governance mechanisms.
Strategic Management Journal, 16(2), 85–99. doi:10.1002/
(ISSN)1097-0266
INFORMATION SYSTEMS MANAGEMENT 11
Sundaramurthy, C. (1996). Corporate governance within the
context of antitakeover provisions. Strategic Management
Journal, 17(5), 377–394. doi:10.1002/(ISSN)1097-0266
Turel, O., & Bart, C. (2014). Board-level IT governance and
organizational performance. European Journal of
Information Systems, 23(2), 223–239. doi:10.1057/
ejis.2012.61
Turel, O., Liu, P., & Bart, C. (2017). Board-level information
technology governance effects on organizational perfor-
mance: The roles of strategic alignment and authoritarian
governance style. Information Systems Management, 34(2),
117–136. doi:10.1080/10580530.2017.1288523
Walsh, J. P., & Seward, J. K. (1990). On the efficiency of internal
and external corporate control mechanisms. Academy of
Management Review, 15(3), 421–458. doi:10.5465/
amr.1990.4308826
Weill, P. (1992). The relationship between investment in
information technology and firm performance: A study
of the valve manufacturing sector. Information Systems
Research, 3(4), 307–333. doi:10.1287/isre.3.4.307
Westphal, J. D. (1998). Board games: How CEOs adapt to
increases in structural board independence from
management. Administrative Science Quarterly, 43(3),
511–537. doi:10.2307/2393674
Westphal, J. D., & Stern, I. (2007). Flattery will get you
everywhere (especially if you are a male Caucasian): How
ingratiation, boardroom behavior, and demographic min-
ority status affect additional board appointments at US
companies. Academy of Management Journal, 50(2),
267–288. doi:10.5465/amj.2007.24634434
Westphal, J. D., & Zajac, E. J. (1997). Defections from the inner
circle: Social exchange, reciprocity, and the diffusion of board
independence in US corporations. Administrative Science
Quarterly, 42(1), 161–183. doi:10.2307/2393812
Yao, L. J., Liu, C., & Chan, S. H. (2010). The influence of firm
specific context on realizing information technology business
value in manufacturing industry. International Journal of
Accounting Information Systems, 11(4), 353–362. doi:10.1016/
j.accinf.2010.09.007
Zhang, P., Zhao, K., & Kumar, R. L. (2016). Impact of IT
governance and IT capability on firm performance.
Information Systems Management, 33(4), 357–373.
doi:10.1080/10580530.2016.1220218
Zhu, K., Kraemer, K. L., & Dedrick, J. (2004). Information tech-
nology payoff in e-business environments: An international
perspective on value creation of e-business in the financial
services industry. Journal of Management Information
Systems, 21(1), 17–54. doi:10.1080/07421222.2004.11045797