Institutional Investors and the Development of IT Capability: Evidence from Publicly Listed Companies

Investors often influence the strategic decisions of their holdings, such as long-term orientation and investments in intangible assets. Investigating IT capability as a strategic asset, we examine the influence of institutional shareholders’ investment horizon and blockholdings on the development of organizational IT capability. We perform a panel data analysis of eleven years of archival data from publicly listed U.S. companies. Our findings show a positive relationship between a firm’s ownership structure and the development of its IT capability. In particular, we find that equity owners that remain invested over long periods of time increase firms’ likelihood of developing a continuous IT capability. In contrast, investors that can be classified as blockholders do not exert significant influence on their portfolio firms. By linking accounting research on firm ownership with ongoing IS research on IT capability, we provide new insides into the firm-level benefits of long-term oriented institutional investors on IT capability.