New Entry Threats and Firm Performance in the IT Industry: The Moderating Role of Board Independence
Start Date
10-12-2017 12:00 AM
Description
The Information Technology (IT) industry is characterized by rapid technological change and fast-moving dynamics, a significant part of which may be attributed to entrepreneurial ventures. Correspondingly, the rate of new entry from entrepreneurial ventures poses a critical risk factor for incumbent IT firms. Leveraging a novel new entry threats (NET) measure, we show that a higher level of NET indeed leads to a drop in the incumbent’s performance as predicted by theoretical work. We also find that facing high NET, firms with more independent directors are better able to withstand these threats, possibly due to stronger monitoring and the valuable resources and information provided by the independent directors. To further address the endogeneity issues associated with board independence, we use the enactment of the Sarbanes-Oxley Act and related changes to the NYSE/NASDAQ listing rules as exogenous shocks to create instruments, and our results are robust to the instrumental variable regressions.
Recommended Citation
Pan, Yang; Huang, Peng; and Gopal, Anand, "New Entry Threats and Firm Performance in the IT Industry: The Moderating Role of Board Independence" (2017). ICIS 2017 Proceedings. 6.
https://aisel.aisnet.org/icis2017/Strategy/Presentations/6
New Entry Threats and Firm Performance in the IT Industry: The Moderating Role of Board Independence
The Information Technology (IT) industry is characterized by rapid technological change and fast-moving dynamics, a significant part of which may be attributed to entrepreneurial ventures. Correspondingly, the rate of new entry from entrepreneurial ventures poses a critical risk factor for incumbent IT firms. Leveraging a novel new entry threats (NET) measure, we show that a higher level of NET indeed leads to a drop in the incumbent’s performance as predicted by theoretical work. We also find that facing high NET, firms with more independent directors are better able to withstand these threats, possibly due to stronger monitoring and the valuable resources and information provided by the independent directors. To further address the endogeneity issues associated with board independence, we use the enactment of the Sarbanes-Oxley Act and related changes to the NYSE/NASDAQ listing rules as exogenous shocks to create instruments, and our results are robust to the instrumental variable regressions.