Why and how executive equity incentive influences digital transformation: the role of internal and external governance

ABSTRACTExecutives play a decisive role in the strategic adjustment of digital transformation, yet few studies explore the impact of executive equity on firms’ digital transformation. Taking 2009–2019 listed manufacturing companies in China as the research object, we integrate the interest convergence effect hypothesis and risk aversion hypothesis in upper echelons theory to explore why and how executive equity accelerates firms’ digital transformation. The research shows that equity incentive enables executives to converge with corporate interests in digital transformation. Specifically, in China’s unique internal governance and institutional environment, enterprises with low ownership concentration, minimal distortion of market factors and fewer political connections, a more significant positive impact of executive equity incentives on digital transformation. However, the supervisory role of independent directors does not work, as their selection and appointment are determined by the controlling shareholder. This article is the first to analyze the factors driving firms’ digital transformation from the perspective of executive-enterprise interest convergence.KEYWORDS: Firms’ digital transformationexecutive equityinternal governanceinstitutional environment Disclosure statementNo potential conflict of interest was reported by the author(s).Conflicts of interestThe authors declare no conflict of interest.Additional informationFundingThis work was supported by Key Project of Philosophy and Social Sciences of Ministry of Education of China: [Grant Number 15JZD020].Notes on contributorsYan ZhouYan Zhou is a PhD candidate of the Business Administration School at South China University of Technology. Her research interests are mainly innovation management and strategy management.Haojun WangHaojun Wang is a PhD candidate of the Business Administration School at South China University of Technology. His research interests are focused on S&T policy, entrepreneurship and innovation management.Hailin LanHailin Lan is a Professor of the Business Administration School at South China University of Technology. His current research is focused on enterprise strategic management.