The Impact of CEO IT Ability on Bank Loan Terms

Abstract

While the role that information technology (IT) executives’ expertise has on firm outcomes is well-documented, little empirical work investigates the effect of the IT ability of non-IT executives on firm outcomes. We apply upper echelons theory and create a unique measure of Chief Executive Officer (CEO) IT ability to empirically investigate its impact on bank loan pricing and non-pricing terms. Examining a sample of firms between 2002 and 2017, we find that CEO IT ability is associated with lower cost of debt, less collateral, fewer loan covenants, and fewer credit ratings downgrades. Further, we show that our results are not driven by high tech firms and are incremental to firm-level IT capability. Our results extend upper echelons theory and suggest that IT ability is an important CEO characteristic that can be influential in improving lending outcomes.