Fox School of BusinessIdea Marketplace

CIO Background, Strategic Positioning, and Investor Reactions

April 11th, 2013

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The Sarbanes-Oxley Act of 2002 in the U.S requires management the company‘s internal controls on financial reporting that rely on the company’s information systems, thereby emphasizing the role of the CIO (Chief Information Officer). Therefore, appointing a CIO with appropriate experience is an important strategic decision. We examine how companies with different strategic positioning (differentiation or cost leadership) hire different types of CIOs (with technical or business background), and how the stock market reacts to aligned/misaligned CIO appointments. Results from data drawn from Nasdaq100 and S&P500 indices support our propositions, emphasizing the CIO’s background as a factor to consider when appointing CIOs. Specifically, differentiators are more likely to hire a technical CIO, while cost leaders are more likely to hire a business CIO. Most interestingly, firms that align their CIO’s experience with their strategic positioning (differentiators appointing technical CIOs and cost leaders appointing business CIOs) have superior stock performance.

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