Executive Compensation and Strategic Risk-Taking in IT

This study examines how the risk-taking incentive of top executives drives the strategic risk-taking in corporate IT implementation. We use the risk incentive provided in executive compensation to capture top executives’ risk-taking incentive, and develop measures of aggressive IT implementation to capture strategic risk-taking in IT implementation. Our analysis provides empirical evidence that the risk incentive of executive compensation drives aggressive IT implementation. We also consider how firm diversification may influence the relationship between the risk incentive of top executives and aggressive IT implementation. Our finding indicates that the relationship between the risk incentive of top executives and aggressive IT implementation is stronger in focal firms’ primary industries than in their secondary industries, which suggests that diversification supports IT risk taking by providing riskseeking executives more opportunities in the areas that are less familiar to them.