Evaluating Information Technology Investments: Insights from Executives’ Trades
Authors: Havakhor, Taha; Sabherwal, Sanjiv; Sabherwal, Rajiv; Steelman, Zachary R.
Journal: MIS Quarterly (2022)
<jats:p>Performance impacts of investments in information technologies (ITs) are difficult to evaluate. External investors are further constrained by their lack of visibility into the firm’s intangible, complementary actions and capabilities, creating an information asymmetry between them and the firm’s executives. Building on signaling theory and the research on senior executives’ trades in a firm’s stock, this paper addresses the following question: How are the stock trades by a firm’s senior executives before a major IT investment by the firm associated with the future value to the firm from that IT investment? The results based on data on 2,898 publicly announced IT investments from 926 firms during 2002–2016 suggest that (1) the purchasing of a firm’s stock by its senior executives before a firm’s IT investment is associated with the investment’s long-term effect on firm value; (2) such stock purchases by a firm’s senior executives are associated with a stronger positive (negative) relationship between the IT’s newness and the long-term abnormal returns to firms emphasizing a revenue enhancement (cost reduction) IT strategy; (3) for firms pursuing a hybrid strategy, purchases…