The Chief Information Officer: Impact on Organizational Forecasting Outcomes

Abstract

Management earnings forecasts are essential sources of information for organizational shareholders. However, many companies remain in a quandary about how to develop an appropriate governance structure within top management to produce high-quality forecasts. This study investigates how firms with chief information officers (CIOs) impact organizational outcomes in terms of both the frequency and the bias of management earnings forecasts. We integrate the following theories to formulate our hypotheses: upper echelons theory, agency theory, and information processing theory (in conjunction with strategic management literature). Using a sample of firm-years (2000 to 2010), we find robust support for the proposition that firms with CIOs are associated with reduced opportunistic bias in earnings forecasts. In addition, we find that, as information uncertainty increases, firms with CIOs generate management forecasts less frequently and exhibit a reduction in optimistic forecasting bias. Collectively, these findings provide a theory-based understanding of how firms with CIOs can influence forecasting outcomes.