Businessperson or Technologist: Stock Market Reaction to the Alignment between CIO Background and Firm Strategy

Abstract

ABSTRACT Chief Information Officers (CIOs) influence their firm’s strategy implementation and facilitate improved firm performance by effectively managing information technology (IT) resources. However, it remains unclear how firms select CIOs and how the stock market perceives the selection. We posit that firms’ preferences regarding CIO background (business acumen versus technical expertise) depend on their strategic positioning. Also, we argue that the stock market pays attention to the alignment between the appointed CIO’s background and firm strategy. To empirically examine this, we employ factor analysis on a sample of 1,287 CIOs with detailed biographic information on education, work experience, and certification to identify the CIO’s background. Utilizing 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 the stock market reactions to CIO appointments. We document that cost-leadership-leaning firms are more likely to appoint a CIO with a stronger business-oriented background, while differentiation-leaning firms are more likely to appoint a CIO with a stronger technical-oriented background. Interestingly, firms with misaligned CIO appointments suffer a negative stock market reaction. We discuss theoretical and practical implications of selecting aligned versus misaligned CIOs.