CIO Background, Strategic Positioning, and Stock Market Reaction To CIO Appointments

Abstract

The importance of the Chief Information Officer (CIO) has been enhanced in recent decades with the growing reliance of firms on IT. CIOs influence their firm’s strategy implementation and can facilitate improved firm performance by effectively managing IT resources. However, what makes an ideal CIO—technical expertise or business acumen—has not been resolved in the literature or practice. We theorize that an ideal CIO’s background must align with the firm’s strategic positioning. To test our premise, we first conduct a factor analysis using a sample of 1,236 CIOs with detailed biographic information on CIO education, work experience, and professional certification to identify CIO background types. Using these measures, we examine whether the appointed CIO’s background depends on the appointing firm’s strategic positioning in a normative model. Then, we use a predictive model to test whether the stock market reacts negatively to misaligned CIO appointments. Consistent with our theorization, we show that cost leaders are more likely to appoint a CIO with a business background, while differentiators are more likely to appoint a CIO with a technical background. Notably, firms with misaligned CIO appointments suffer a negative stock market reaction. Our study has important implications for the literature on IT leadership and should be of interest to firms, boards, and investors when considering CIO candidates.

Keywords: management control system, strategic positioning, CIO

JEL Classification: M40