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

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