Does institutional investor influence information technology investment decisions and corporate performance?

Abstract

This paper examines the role of institutional investors foreign-owned firms and government-linked companies, in improving firm performance through the channel of IT investment decision. The data sample comprises information collected from the annual reports of 231 companies listed on Bursa Malaysia, spanning the years 2010 to 2019. This study concludes, on the basis of the Generalized Method of Moments (GMM) dynamic model, which mitigates the endogeneity issue linked to the equity multiple value model, that institutional ownership moderates the relationship between IT investment and firm performance in a positive direction. The results of the study shed light on the capacity of institutional investors to allay apprehensions regarding agency problems that arise from the rent-seeking conduct of managers. The implications of this finding are both theoretical and practical, given that IT expenditures continue to constitute a substantial proportion of the capital budgets of organisations. However, several studies indicate that there is no direct relationship between firm IT investment levels and firm performance. This study contributes to the body of knowledge by examining the influence of institutional investors on IT investment decisions. It does so by integrating agency theory, which explains performance shortfalls, and corporate governance, which oversees and controls managers’ inappropriate investment choices, thereby illuminating the antecedents of IT investment decisions. The present investigation would furnish significant insights for stakeholders, investors, and the general public, thereby augmenting their understanding of the pivotal significance of institutional ownership and guaranteeing that investments in IT are adequately regulated.

Keywords:

• IT investment
• government-linked companies
• foreign-owned firms
• equity value multiple

SUBJECTS:

• Management of IT
• Business
• Management and Accounting
• Industry & Industrial Studies

REVIEWING EDITOR:

• Collins Ntim, University of Southampton, United Kingdom of Great Britain and Northern Ireland

Author contributions

The first author was involved in the conception and design, analysis and interpretation of the data. The second author was involved in the conception, and the third and fourth authors were involved in the drafting of the paper, revising it critically for intellectual content; and the final approval of the version to be published; and that all authors agree to be accountable for all aspects of the work.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

I utilized data from my previous article in the current study, incorporating a moderator variable to examine the relationship. Sure, the data of the IT Investment variable, Firm Performance variables and control variables are the same, but the moderator variable did not exist in my previous article, here are the differences. The authors confirm that the data of this study are available within my previous article: https://doi.org/10.1080/23311975.2022.2055906.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Abdelkader Alghorbany

Abdelkader Alghorbany is an Assistant Professor at Department of Management, University of Oran 1, Oran, Algeria. The research area focuses on corporate governance and auditing.

Abdulmalik Salau Olarinoye

Salau Olarinoye Abdulmalik is a Senior Lecturer with Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia. He holds a Ph.D. in Accounting and the research area focuses on corporate governance and auditing. He has published in several revered journals.

Moses Elaigwu

Elaigwu Moses is a Lecturer at the Department of Accounting, Kogi State University, Anyigba, Kogi State, Nigeria. His research area focuses on corporate governance and corporate sustainability reporting.

Ayoib Che-Ahmad

Ayoib Che-Ahmad is a Professor of Accounting with Tunku Puteri Intan Safinaz School of Accountancy, University Utara Malaysia. He is the present Deputy Vice-Chancellor (DVC) Research and Innovation Universiti Utara Malaysia. His research area focuses on corporate governance and auditing. He has published several articles and books.