R&D Productivity following First-Time CIO Appointments

Prior studies find that firms announcing the appointment of a new chief information officer (CIO) are rewarded by stock price increases, suggesting that the market expects new CIOs to add long-term value to the firm. In this paper, we examine whether first-time CIO appointments result in improved R&D productivity. We focus on R&D investments because an important role of IT management is to aid in discovery and management of growth opportunities. Successful R&D activities are designed to create the type of knowledge-based, growth-critical assets (new or improved products, better distribution methods, etc.) that effective IT management would be expected to assist. After controlling for industry performance, we find that the productivity of R&D improves significantly after the appointment of a new CIO. Further tests find that R&D productivity following the appointment of a first-time CIO is priced by the market as much or more than productivity in the pre-appointment period, implying that the market perceives the productivity improvements to persist. Our results for R&D investments suggest that new CIOs improve the way IT is managed and improve their firms’ approach to knowledge management. One conclusion from this study is that the IT productivity paradox may be resolvable by focusing on segments of performance that are most directly impacted by improvement in IT management. We recommend avenue for further research.