Managerial Risk Incentives and Strategic Risk-Taking in IT
Posted: 1 Sep 2013 Last revised: 1 Oct 2013
Date Written: 2013
This study examines how the risk-taking motives of top managers drives risk-taking in IT implementations. We use the risk incentives provided in managerial compensation to capture top managers’ risk-taking motives, and develop measures of aggressive IT implementation to capture strategic risk-taking in IT. Our analysis provides empirical evidence that managerial risk incentives drive aggressive IT implementations. We also consider how firm diversification may influence the relationship between managerial risk incentives and aggressive IT implementations. Our findings suggest that the relationship between managerial risk incentives and aggressive IT implementations is stronger in focal firms’ secondary business areas than in their primary business areas. The implication is that diversification provides risk-seeking managers more opportunities for IT risk-taking and allows them to reallocate their risk-taking initiatives in the business areas that are less familiar to them.
Keywords: Executive compensation, Managerial incentives, Risk-taking, Information technology, Diversification, IT strategy
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