Finance

Business

Investment (military)

Investment decisions

Prospect theory

Corporate governance

Politics

Agency (philosophy)

Behavioral economics

Epistemology

Shareholder

Empirical research

Philosophy

Political science

Economics

Principal–agent problem

Microeconomics

Agency cost

Industrial organization

Journal of Management Information Systems

While prior research has established that information technology (IT) investment has a significant impact on firm performance, relatively few studies have provided insights into the antecedents of IT investment decisions. By integrating the behavioral theory of the firm and agency theory, we propose a behavioral agency theory to explain performance shortfalls and corporate governance, which monitors and controls managers’ tendency of overinvestment or underinvestment in IT, as key drivers that jointly determine IT investment. As such, IT investment facilitates a firm’s problemistic search that generates innovation in response to performance gaps. We further examine the role of innovation outputs as a mediating mechanism linking IT investment to firm performance. Our econometric analysis of a large-scale panel dataset provides empirical evidence corroborating our theory. Overall, this study contributes a behavioral agency theory to deepen our understanding about performance drivers and outcomes of IT investment decisions.

How Firms Make Information Technology Investment Decisions: Toward a Behavioral Agency Theory