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Paper Number

2229

Paper Type

Short

Description

Recent research has shown managers’ tendency to cut discretionary investments to meet short-term earnings targets. However, how these aspirational levels of performance and associated conflicts of interest between managers and shareholders influence information technology (IT) investments has hardly been examined. Drawing on behavioral agency theory, we analyze how earnings pressure – the pressure managers feel to meet or beat analysts’ consensus earnings forecast – influences IT investments. We find that earnings pressure is associated with a reduction in firms’ IT investment commitment, based on the frequency of sentences within 10-K filings emphasizing IT investment. This finding points towards a hitherto unconsidered influence of capital markets on IT investments in literature on IT investment determinants. Further, we plan to analyze if this reduction entails negative or positive stock market performance consequences. Understanding the performance consequences will allow us to lay the foundation towards effectively addressing this issue within corporate governance.

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Dec 12th, 12:00 AM

IT Investments under Earnings Pressure

Recent research has shown managers’ tendency to cut discretionary investments to meet short-term earnings targets. However, how these aspirational levels of performance and associated conflicts of interest between managers and shareholders influence information technology (IT) investments has hardly been examined. Drawing on behavioral agency theory, we analyze how earnings pressure – the pressure managers feel to meet or beat analysts’ consensus earnings forecast – influences IT investments. We find that earnings pressure is associated with a reduction in firms’ IT investment commitment, based on the frequency of sentences within 10-K filings emphasizing IT investment. This finding points towards a hitherto unconsidered influence of capital markets on IT investments in literature on IT investment determinants. Further, we plan to analyze if this reduction entails negative or positive stock market performance consequences. Understanding the performance consequences will allow us to lay the foundation towards effectively addressing this issue within corporate governance.

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