Social Learning in Information Technology Investment: The Role of Board Interlocks

Forthcoming, Management Science

56 Pages Posted: 18 Nov 2019

See all articles by Zhuo (June) Cheng

Zhuo (June) Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Arun Rai

Georgia State University - J. Mack Robinson College of Business

Feng Tian

Hong Kong Polytechnic University

Sean Xu

Tsinghua University - School of Economics & Management

Date Written: September 17, 2019

Abstract

We use a social learning perspective to extend our understanding of information technology (IT) investment and return. Specifically, we investigate social learning in the context of interlocks between corporate boards, which allow firms to share knowledge and experiences with respect to their IT investments. Using a large dataset of firm-years from 2001 to 2008, we find (a) a positive relationship exists between a focal firm’s IT investment and that of its interlocked firms; (b) this positive relationship is amplified by the interlocked firms’ IT capability, but only if the focal firm has an active board, which devotes time to allow sufficient communication among directors; and (c) the component of the focal firm’s IT investment that is attributable to board interlock influence is positively related to the firm’s performance, but only if the firm has an active board. Collectively, these findings support our central thesis: social learning through board interlocks can play a significant role in influencing a firm’s IT investments and enhancing their payoff. That said, attaining such benefits requires boards to incorporate those firms with high IT management capability and to strengthen board activity so interlocked members can substantively share their knowledge and experiences with IT investments.

Keywords: IT investment, IT return, social learning, board interlocks

Suggested Citation

Cheng, Zhuo (June) and Rai, Arun and Tian, Feng and Xu, Sean, Social Learning in Information Technology Investment: The Role of Board Interlocks (September 17, 2019). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3483296

Zhuo (June) Cheng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Arun Rai

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Feng Tian

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Sean Xu (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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