Corporate Governance and Strategic Resource Allocation

Excerpt from Corporate Governance and Strategic Resource Allocation: The Case of Information Technology Investments

This paper draws from both IS and strategy research by constructing an exploratory conceptual model of IT investments that is based on a corporate governance perspective. It builds upon extant strategic management research that is traditionally concerned with the relationship between corporate governance and allocation of strategic resources (hill and Snell, We focus on two constructs stock ownership structure and takeover defense adoption and examine their specific relationships with the level of IT investments in firms. Given alternative and unresolved perspectives within the theories of corporate governance, we develop competing hypotheses to postulate these relationships within an exploratory conceptual model.

We argue that structure of stock ownership that includes large or insider shareholders can influence the level of IT investments in two directions. One, the ownership structure can align the interests of the managers with those of the shareholders when the actions and choices of these managers are being monitored, thus increasing the level of IT investments (the monitoring hypothesis). Two, conservatism in IT investments may arise when certain stockholders larger shareholders or inside shareholders), who may not be diversified in their portfolio holdings or who may prefer projects with short-term gains, exhibit risk aversion toward long-term investments (the conservatism hypothesis).

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