The Chief Information Officer: Impact on Organizational Forecasting Outcomes

Abstract

Management earnings forecasts are essential sources of information for organizational shareholders. However, many companies remain in a quandary about how to develop an appropriate governance structure within top management through which quality forecasts can best be derived. This study investigates how firms that employ a Chief Information Officer (CIO) within its ranks impact organizational outcomes as reflected in both the frequency and bias of management earnings forecasts. For the theoretical basis, we integrate the following theories to formulate our hypotheses: upper echelons theory, agency theory, and information processing theory (in conjunction with strategic management literature). Using a sample of firm-years (2000 to 2010), we find robust support for the proposition that the firms with CIOs are associated with reduced opportunistic bias in earnings forecasts. In addition, we find that as information uncertainty increases, firms with CIO generate management forecasts less frequently, yet also with a reduction in optimistic forecasting bias. Collectively, these findings provide a theory-based understanding of how firms with CIOs can influence forecasting outcomes while also providing guidance to practice.

Keywords: Chief Information Officer (CIO), Upper Echelons Theory, Agency Theory, Information Processing Theory, IS Leadership, Strategic Management, Top Management, Management Earnings Forecasts