Operational IT Failures, IT Value-Destruction, and Board-Level IT Governance Changes

MIS Quarterly, Forthcoming

69 Pages Posted: 26 Apr 2017

See all articles by Michel Benaroch

Michel Benaroch

Syracuse University - Whitman School of Management

Anna Chernobai

Syracuse University - M. J. Whitman School of Management

Date Written: January 19, 2017

Abstract

We present an empirical study of changes that firms implement in their board-level IT governance (ITG) upon experiencing operational IT failures. Consistent with the separation of oversight from management decisions, board-level ITG is responsible for monitoring managerial IT decisions and policies for controlling IT resources. We expect that operational IT failures indicating inadequacies in board monitoring of controls over IT resources would result in a negative stock market reaction and, in turn, induce firms to improve their board-level ITG. Our expectation is confirmed based on a sample of 110 operational IT failures from U.S. public financial firms. Specifically, our results demonstrate that subsequent to experiencing operational IT failures firms make improvements to the IT competency level of their boards, and the improvements are proportional to the degree of negative market reaction. However, those improvements are only on the executive side of the board, namely: an increase in the IT capital of internal (executive) directors and an increased turnover rate of CIOs serving on the board. Furthermore, the likelihood of CIO turnover is lower in IT-intensive firms where such turnover could be more disruptive. Our results contribute to understanding the critical connection between operational IT failures and board-level ITG.

Keywords: operational IT failure, board - level IT governance, IT governance monitoring, board IT competency , IT governance mechanisms, board of directors, financial services .

Suggested Citation

Benaroch, Michel and Chernobai, Anna, Operational IT Failures, IT Value-Destruction, and Board-Level IT Governance Changes (January 19, 2017). MIS Quarterly, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2887773

Michel Benaroch (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Anna Chernobai

Syracuse University - M. J. Whitman School of Management ( email )

721 University Ave
Syracuse, NY 13244-2450
United States
(315) 443 3357 (Phone)

HOME PAGE: http://https://sites.google.com/a/g.syr.edu/anna-chernobai/

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