Disruptive information technology innovations and the cost of equity capital: The moderating effect of CEO incentives and institutional pressures

• We examined whether disruptive IT innovations affected equity financing cost.
• We used longitudinal data from 146 U.S. listed firms that adopted RFID.
• RFID adoption significantly reduced the cost of equity capital for adopting firms.
• The reduction was larger under greater CEO incentives and coercive pressure.

Disruptive information technology (IT) innovations not only present opportunities, but also cause uncertain impacts on firm risk that affects the equity financing cost of a firm. This paper used longitudinal data from 146 U.S. listed firms that adopted radio frequency identification (RFID), a disruptive technology that enables supply chain process innovation. Results show that firms that adopted RFID significantly reduced their cost of equity capital, and the reduction was stronger for firms with greater CEO incentive-based compensation and coercive pressure. The findings help managers make strategies that maximize the benefits of disruptive IT innovations.