Corporate governance and strategic resource allocation: The case of information technology investments

Abstract

We empirically examine a set of relationships between corporate governance and information technology investments. Specifically, we test our relationships with data from a sample of major U.S. corporations using structural equation modeling. We established a negative relationship between information technology investments and two constructs of corporate governance, namely: (a) stock ownership structure (that includes large or insider shareholders); and (b) presence of takeover defenses. These results provide support for the "monitoring hypothesis" and the "managerial entrenchment hypothesis" of risky investments respectively. In addition, we observed a negative relationship between stock ownership structure and takeover defense adoption. Our study contributes to a critical understanding of the determinants of information technology investments viewed within the governance context of a relational exchange between two important corporate constituents: the managers and the shareholders. © 1993.