When Firms Deviate from Industry Benchmarks: A Study on IT Human Capital Investment Deviation and Firm Performance

The extant literatures on the resource-based view and knowledge-based view of firms are silent about how IT human capital investment deviation -i.e., underinvestment and overinvestment in IT human capital- implicate firm outcomes. Anchoring our study in the Red Queen competition theory and the theoretical perspectives flowing from the organization resource slack literature, we examine the relationship between IT human capital investment deviation and firm performance. In particular, we hypothesize that IT human capital overinvestment and IT human capital underinvestment are associated with increased and decreased firm performance respectively. We test our hypotheses using a sample of 715,652 firm observations over 9 years. We find a positive relationship between IT human capital overinvestment and firm performance. We do not find evidence for our prediction that IT human capital underinvestment is associated with firm performance losses. The findings of the study have implications for the IT human capital literature.