Information technology investments and firm performance: The interacting effect of it governance

In recent times, investment in information technology (IT) has become indispensable in any company. Proper management of IT investment may create value for the company and improve its performance. However, companies face problems in choosing the right IT investment decision that improves companies' performance. Subsequently, the objective of the study was to investigate the effects of IT investment on companies’ performance in Malaysia. In addition, it examined further whether this effect was interacted by IT governance mechanisms such as CEO career horizon, CEO gender, CEO IT background, board IT training, government-linked companies and foreign-owned firms. This study employed the dynamic panel estimation technique, the Generalized Method of Moments (GMM), that considered the endogeneity nature of the performance model. The GMM analysis was based on data from 231 publicly listed companies in Bursa Malaysia between 2010 and 2019. It revealed a positive and non-significant association between IT investment and firm performance. Furthermore, the IT governance mechanisms (i.e., CEO career horizon, CEO gender, CEO IT background, board IT training, government-linked companies, and foreign-owned firms) were found to significantly enhance the positive association between IT investment and firm performance. Thus, the findings of this study have both theoretical and practical implications. The results provided empirical evidence on the direct impact of IT investment on firm performance. In addition, the indirect impact may serve as an indication for firms to understand IT governance mechanisms and its interaction effects between IT investment and firm performance. These would enhance the awareness of professionals, the board of directors and management in the critical role of IT governance practices and in ascertaining that firm’s IT investment is properly governed.