REVISITING THE ROLE OF CHIEF INFORMATION OFFICER (CIO) APPOINTMENTS ON THE PERCEIVED MARKET VALUE OF THE FIRM

Abstract

Based on the Chief Information Officer (CIO) appointment announcements during the years of 1987 – 2002, Chatterjee et al. (2001) and Khallaf & Skantz (2007) showed that the market perceived these announcements favourably with the notion that CIOs can indeed add value to the firms. However, the results of these studies may have been influenced by other factors such as the presence of technology-specific major events, which have ceased to exist in today’s markets. Therefore, this paper re-examines the conclusions reached by prior studies through the event study methodology with CIO appointment announcements made during the years between 2005 and 2011. We find that there is indeed a shift in market perception of the value in which the CIO can contribute to the firm. We further explore the possible determinants that can account for this change in market response and find that the market penalizes firms that appointed CIOs to newly created positions while it is indifferent to firms that appointed CIOs to an existing position. In addition, there is also insufficient evidence to support the notion that some CIO and firm specific characteristics, which had once been valued by the market, are still being valued today. Thereafter, some theoretical and managerial implications such as the relevance of the CIO position that is inferred from the market response and the considerations that the management should factor in when making an appointment announcement decision, are also discussed. It is hoped that this study will supplement the already limited literature on CIO appointment announcement studies and facilitate a better understanding of the market reaction to these announcements.