
==== Front
Heliyon
Heliyon
Heliyon
2405-8440
Elsevier

S2405-8440(24)12669-2
10.1016/j.heliyon.2024.e36638
e36638
Research Article
CEO regulatory focus on digital transformation: Evidence from China
Lou Zaizhi a
Zheng Wangxiongjie msil42@163.com
b⁎
a School of Economics and Management, Shihezi University, XinJiang, 832099, China
b Shanghai University of Finance and Economics, Shanghai, 200000, China
⁎ Corresponding author. msil42@163.com
22 8 2024
15 9 2024
22 8 2024
10 17 e3663814 1 2024
5 8 2024
20 8 2024
© 2024 Published by Elsevier Ltd.
2024

https://creativecommons.org/licenses/by-nc-nd/4.0/ This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Digital transformationsw has become crucial for business to stay competitive in today's technology-driven world. Research shows CEOs' characteristics can influence firms' digital transformation, however, this work has not considered the role of CEO regulatory focus. In this paper, we build a framework to understand the relationship between CEO regulatory focus and firm's digital transformation. Build on regulatory focus theory, we argue that CEO promotion focus is positively associated with enterprise digital transformation, whereas CEO prevention focus is negatively associated with enterprise digital transformation. We further identify two contextual factors that moderating the relationship between CEO regulatory focus and digital transformation. Specifically, we find CEO power and economic policy uncertainty strengthen the relationship between CEO regulatory focus and enterprise digital transformation. We find strong support for our hypotheses in a sample of 2696 Chinese publicly listed firms between 2008 and 2023. Our findings have significant implications for understanding the role of CEO regulatory focus on digital transformation.

Keywords

CEO regulatory focus
Digital transformation
CEO power
Economic policy uncertainty
==== Body
pmc1 Introduction

In this rapidly evolving landscape, digital transformation has become crucial for businesses to maintain competitiveness [1,2]. An increasing number of organizations now view digital transformation as a strategic imperative (Verhoef et al., 2021; [3]). Consequently, recent research has sought to comprehend the drivers and determinants of digital transformation across various organizational contexts ([[4], [5], [6]]; Raffaelli et al., 2019; [7,8]). Our study aims to contribute to this growing body of knowledge by shedding light on the factors influencing organizations' approaches to digital transformation, with a particular focus on CEO characteristics.

Digital transformation is defined as "a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies" [8]. This comprehensive process encompasses not only technological adoption but also organizational change and strategic reorientation [9,10]. Drawing on upper echelons theory, which posits that the psychological characteristics of top executives significantly influence corporate strategy and performance [[11], [12], [13], [14]], our study explores the role of CEO characteristics in shaping digital transformation initiatives.

While prior research has investigated the link between certain CEO characteristics and digital transformation ([6]; Raffaelli et al., 2019; [15]), an essential individual-level factor that affects CEO decision-making in the context of digital transformation strategies has been largely overlooked: regulatory focus. Regulatory focus theory, as proposed by Higgins [16], suggests that individuals are influenced by two distinct self-regulatory systems: a promotion regulatory focus and a prevention regulatory focus. Individuals with a high promotion focus are primarily motivated to pursue their "ideal selves" and aspirations (Lanaj et al., 2012; [17]), while those with a strong prevention focus are motivated to fulfill obligations and ensure security (Lanaj et al., 2012; [18]). Both promotion and prevention foci independently shape an individual's propensity to pursue goals and employ strategic means (Brockner et al., 2004 [19]; Lanaj et al., 2012; [14]). By incorporating insights from regulatory focus theory, we aim to develop a more nuanced understanding of the drivers of digital transformation.

We posit that CEO promotion focus will be associated with a higher level of digital transformation, while CEO prevention focus will be associated with a lower level of digital transformation. This proposition is grounded in the understanding that promotion focus emphasizes opportunities and the "ideal self," whereas prevention focus prioritizes safety and the "ought self" [16,20]. Furthermore, we examine the moderating effects of external environmental factors and corporate governance elements on the relationship between CEO regulatory focus and digital transformation. Specifically, we investigate the moderating roles of CEO power and economic policy uncertainty, building on recent research that highlights the importance of contextual factors in strategic leadership [21,22].

To test our hypotheses, we utilize a longitudinal sample of 719 Chinese companies, providing substantial empirical evidence to support our theoretical framework. Our study makes several contributions to the literature on digital transformation and CEO regulatory focus. First, we address a significant gap in the digital transformation literature by incorporating CEO regulatory focus, an key personal trait that has been overlooked in previous studies ([6]; Raffaelli et al., 2019; [15]). By presenting theoretical arguments and empirical evidence demonstrating that a firm's digital transformation strategy is rooted in the CEO's regulatory focus, we provide a crucial complement to existing work.

Second, we extend the literature on CEO regulatory focus by enhancing understanding of its impact on business strategies, particularly in the context of digital transformation. While previous research has examined the relationship between CEO regulatory focus and various corporate strategies (e.g., Refs. [14,[23], [24], [25]]), the digital transformation domain has remained unexplored. Our study broadens the research scope of CEO regulatory focus by investigating its influence on the degree of digital transformation.

Third, we contribute to the contextual strategic leadership literature by examining how corporate governance factors (CEO power) and environmental factors (economic policy uncertainty) moderate the relationship between CEO regulatory focus and the degree of digital transformation. This approach contrasts with previous research that primarily focuses on the main effect of CEO regulatory focus on firm outcomes [21]. Our findings provide a more nuanced understanding of how external environmental factors and corporate governance considerations interact with CEOs' psychological characteristics to influence digital transformation initiatives.

In summary, our study offers valuable insights into the complex interplay between CEO characteristics, organizational factors, and environmental conditions in shaping digital transformation strategies. By integrating regulatory focus theory with digital transformation research, we provide a novel perspective on the drivers of organizational change in the digital age, contributing to both theoretical understanding and practical implications for firms navigating the challenges of digital transformation.

2 Theoretical background and hypothesis development

2.1 CEO regulatory focus and digital transformation

2.1.1 Digital transformation

Digital transformation has emerged as a critical strategic imperative for organizations across industries, fundamentally reshaping business operations and value creation [8]. It involves the integration of digital technologies into all areas of a business, leading to significant changes in how companies operate and deliver value to customers (Fitzgerald et al., 2014).

The success of digital transformation initiatives is heavily influenced by top leadership, particularly the CEO's vision and strategic orientation (Westerman et al., 2014). CEOs play a crucial role in driving digital transformation by setting the strategic direction, allocating resources, and fostering an organizational culture that embraces change and innovation (Hess et al., 2016). Research has shown that CEO characteristics significantly impact the adoption and implementation of digital transformation strategies. For instance, CEO age and tenure have been found to influence the likelihood and extent of digital transformation efforts. Younger CEOs and those with shorter tenures are often more inclined to pursue aggressive digital strategies, possibly due to their greater familiarity with digital technologies and less attachment to existing business models (Chatterjee & Ravichandran, 2013).

Also, from the cognitive lens, prior researchers have examined the connection between the personal characteristics of top managers and digital transformation ([4,6,26]; Raffaelli et al., 2019). Based on data from publicly traded biopharmaceutical businesses in the US, Gerstner et al. [6] discovered a positive correlation between narcissistic CEOs and corporate investment in discontinuous technologies. According to Raffaelli et al. (2019), the executive team's framework's degree of flexibility—that is, their capacity to push the boundaries of innovative cognitive categories—can significantly affect how successfully a company's digital transformation proceeds. According to Li et al. [26], the presence of CIOs will have a favorable impact on how AI technology is adopted and used in businesses, while the variety of board education levels, R&D expertise, and AI experience will positively mitigate the influence of CIOs on AI orientation. However, there is a notable gap in the literature regarding the role of CEO regulatory focus in digital transformation.

2.1.2 Regulatory focus theory

Regulatory focus theory, developed by Higgins [16], posits that individuals have two distinct motivational orientations: promotion focus and prevention focus. These orientations shape how people approach goals, make decisions, and respond to various situations. Promotion-focused individuals are driven by growth, advancement, and the pursuit of ideal states. They tend to be more risk-tolerant, creative, and eager to pursue gains. In contrast, prevention-focused individuals are motivated by safety, security, and the fulfillment of obligations. They are typically more risk-averse, cautious, and vigilant against potential losses ([19]; Friedman & Förster, 2001).

CEO regulatory focus, as conceptualized by Higgins' [16] regulatory focus theory, plays a crucial role in shaping corporate strategy and decision-making (e.g., Ref. [14,[27], [28], [29], [30], [31]]). CEOs with a promotion focus tend to pursue growth-oriented strategies, emphasizing innovation, market expansion, and risk-taking [14]. These leaders are more likely to seek out new opportunities, invest in emerging technologies, and drive organizational change [17]. Conversely, prevention-focused CEOs typically adopt more conservative strategies, prioritizing stability, risk mitigation, and the preservation of existing assets [18]. Their decision-making often revolves around avoiding losses and maintaining the status quo. This strategic orientation influences various aspects of corporate governance, including resource allocation, innovation processes, and organizational culture [20]. Promotion-focused CEOs tend to allocate more resources to high-potential projects and foster a culture of experimentation, while prevention-focused CEOs may prioritize cost-cutting and efficiency improvements. These differences in strategic approach have significant implications for how companies navigate major organizational changes and technological shifts. In the context of digital transformation - a critical strategic imperative in today's business landscape - CEO regulatory focus is likely to play a pivotal role in determining the pace, scope, and success of such initiatives. This research mainly examine the relationship between CEO regulatory focus and the engagement of corporate digital transformation.

2.1.3 CEO promotion focus and digital transformation

By using the regulatory focus theory to the study of digital transformation, we first argue that a CEO with a high promotion focus would actively participate in digital transformation. First, promotion-focused individuals are oriented towards growth, advancement, and the pursuit of ideal states [16]. In the context of organizational leadership, CEOs with a strong promotion focus are more likely to embrace change and seek opportunities for innovation [17]. Digital transformation represents a significant opportunity for organizational growth and competitive advantage in the modern business landscape [8]. Therefore, promotion-focused CEOs are more inclined to recognize and act upon the potential benefits of digital transformation initiatives.

Furthermore, promotion-focused CEOs are characterized by their eagerness to pursue gains and their willingness to take calculated risks [19]. Digital transformation often involves substantial investments and organizational changes, which can be perceived as risky endeavors [32]. However, promotion-focused CEOs are more likely to view these challenges as opportunities rather than threats, leading them to champion digital initiatives despite potential uncertainties [14]. This risk tolerance and gain-seeking behavior aligns well with the transformative nature of digital initiatives, which promise significant rewards in terms of efficiency, innovation, and market positioning (Fitzgerald et al., 2014).

Lastly, promotion-focused CEOs tend to have a more creative and flexible approach to problem-solving and strategy formulation (Friedman & Förster, 2001). This cognitive flexibility is particularly valuable in the context of digital transformation, which often requires innovative thinking and the ability to envision new business models or operational paradigms [33]. Moreover, promotion-focused leaders are more likely to inspire and motivate their teams towards ambitious goals [20], which is crucial for successful digital transformation initiatives that typically require organization-wide commitment and engagement (Westerman et al., 2014). Thus, the creative mindset and motivational capabilities associated with CEO promotion focus further contribute to the positive relationship with digital transformation efforts. Based on the above discussion, we establish the following hypothesis.H1 CEO promotion focus are positively associated with digital transformation.

2.1.4 CEO prevention focus and digital transformation

Based on the regulatory focus theory, we expect that CEO prevention focus would be negatively associated with digital transformation. Firstly, prevention-focused individuals are primarily concerned with security, safety, and the fulfillment of obligations [16]. In an organizational context, CEOs with a strong prevention focus tend to be more risk-averse and cautious in their decision-making [18]. Digital transformation initiatives often involve significant uncertainties and potential disruptions to existing business models [8]. As a result, prevention-focused CEOs may perceive these initiatives as threats to organizational stability and security, leading them to resist or delay digital transformation efforts (Shah et al., 1998).

Moreover, prevention-focused CEOs are characterized by their vigilance against losses and their preference for maintaining the status quo [19]. This orientation can manifest as a reluctance to invest in new technologies or processes that might disrupt established routines, even if they promise long-term benefits [17]. Digital transformation often requires substantial financial investments and organizational changes, which can be perceived as immediate losses or risks by prevention-focused leaders [32]. Consequently, these CEOs may prioritize short-term stability over long-term digital innovation, potentially hindering the organization's digital transformation progress [14].

Finally, prevention-focused CEOs tend to adopt a more narrow and analytical approach to problem-solving, focusing on avoiding mistakes rather than exploring new possibilities (Friedman & Förster, 2001). This cognitive style may lead to a more conservative approach to technology adoption and business model innovation, which are crucial elements of digital transformation [33]. Additionally, prevention-focused leaders may struggle to inspire and motivate their teams towards ambitious digital goals, as their communication style often emphasizes obligations and potential pitfalls rather than opportunities and aspirations [20]. This cautious leadership approach may create an organizational culture that is less conducive to the experimentation and risk-taking often required for successful digital transformation initiatives (Westerman et al., 2014). Based on the above analysis, this study proposes the following hypothesis.H2 CEO prevention focus are negatively associated with digital transformation.

2.2 Moderating role of corporate governance: CEO power

CEO power refers to the capacity of chief executive officers to exert their will and influence organizational outcomes [34]. Powerful CEOs often have more discretion in strategic decision-making and face fewer constraints from other stakeholders [35]. This increased autonomy may allow CEOs to align organizational strategies more effectively with their regulatory focus, potentially amplifying its impact on digital transformation initiatives.

Specifically, promotion-focused CEOs with high power may face fewer organizational constraints and have more resources at their disposal [36], enabling them to more effectively translate their growth-oriented mindset into concrete digital transformation actions. While prevention-focused CEOs may generally be less inclined towards digital transformation, those with high power might have more confidence in their ability to manage risks associated with such initiatives, potentially mitigating their natural tendency to avoid major changes. Based on the above analysis, we propose the following hypothesis.H3 The positive relationship between CEO promotion focus and digital transformation would be moderated by CEO power; the relationship will be stronger as the degree of CEO power increases.

H4 The negative relationship between CEO prevention focus and digital transformation would be moderated by CEO power; the relationship will be stronger as the degree of CEO power increases.

2.3 Moderating role of industry environment: economic policy uncertainty

Economic Policy Uncertainty refers to the unpredictability of government actions and their economic consequences [37]. It encompasses uncertainties in monetary, fiscal, and regulatory policies that can significantly impact business environments. Researches show that high levels of EPU have been associated with reduced corporate investment [38], increased cash holdings [39], and changes in corporate strategies [40]. In the context of digital transformation, EPU may play a crucial role as it affects firms' willingness to invest in long-term, potentially risky projects [41].

Under high EPU, promotion-focused CEOs, who are generally more risk-tolerant and opportunity-seeking [16], may view digital transformation as a means to gain competitive advantage in uncertain times. This aligns with findings from Jiang et al. [40] that some firms increase innovation during periods of high policy uncertainty.

However, under high economic policy uncertainty, prevention-focused CEOs may view digital transformation as a necessary defensive strategy to protect the firm from potential threats and maintain competitiveness. This aligns with the idea that prevention focus can lead to proactive behaviors when such actions are seen as a means to ensure security and stability [42]. Thus, in uncertain environments, not engaging in digital transformation might be seen as a greater risk to the firm's survival and stability. This is consistent with the findings of Cheng & Kesner (1997) that firms may increase certain types of strategic change in response to environmental uncertainty as a way to adapt and survive. Consequently, we offered the following hypothesis.H5 The positive relationship between CEO promotion focus and digital transformation would be moderated by EPU; the relationship will be stronger as the degree of EPU increases.

H6 The negative relationship between CEO prevention focus and digital transformation would be moderated by EPU; the relationship will be stronger as the degree of EPU increases.

3 Methods

3.1 Sample and dataset

We concentrate on a sample of Chinese enterprises listed on the Chinese A-share index at the beginning of 2008. We chose 2008 as the base year because that is the year when China issued 3G licenses, marking a significant milestone in the country's digital infrastructure development. Our data was obtained between 2008 and 2023. Then, we gathered financial data pertaining to the sample companies listed on the stock index from the China Stock Market and Accounting Research Database (CSMAR) and the Management Discussion and Analysis (MD&A) from the WinGo database. We obtained our measurements of CEO promotion emphasis and preventive emphasis from the MD&A sections of annual reports. And the data that assesses the digital transformation (DT) is extracted from the annual report's entire text. After removing enterprises in the financial sector and those for which data was missing or invalid. The final sample consists of an imbalanced panel data set with 2696 firms and 12453 firm-year observations.

3.2 Measure

3.2.1 Dependent variable

The most important dependent variable is a company's digital transformation (DT). To quantify digital transformation, we relied on previous research and created a glossary based on the total amount of words in yearly reports [43,44]. The dictionary was constructed in three steps. First, a seed list of terms linked with the applications and technology of the digital transformation was compiled. This seed list contains terms used to describe digital transformation in significant literatures ([8]; Verhoef et al., 2021; [45]) and official digital transformation policy documents.

Second, to obtain the similar words in the seed list and expand the seed list, we used the Word2Vec machine learning method. Using CBOW (Continuous Big-of-Words Model) and contextual semantic information, the word of the annual report is represented as a multidimensional vector, and vector similarity is calculated to obtain the similar words of the aforementioned seed words in the financial reporting context. We select the five most comparable terms as the initial extended word list.

Third, we narrowed this list of words to those having the greatest theoretical congruence with digital transformation, yielding a dictionary of 76 terms (e.g., machine learning, deep learning, cloud computing). Using the total amount of digital transformation-related words in each annual report, the indicator for digital transformation is then built.

3.2.2 Independent variable

Language can represent a person's cognition, tastes, and personality (Webb et al., 1996), and researchers can capture a subject's traits by evaluating the type and frequency of words used [46,47]. Specifically, text analysis of CEO letters to shareholders has been widely used to catch the cognitive and attention, values, and psychological characteristics of different CEOs Nadkarni & Barr, 2008. For example, the greater the emphasis on words like "gain" and "development" in a person's language, the greater their promotion regulatory focus; conversely, the greater the emphasis on words like "loss", "stability", and "obligation", the greater their preventive regulatory focus [14]. On the basis of this study paradigm, this work combines the current English regulatory focus word list, the characteristics of the MD&A Chinese corpus, and Word2Vec machine learning to develop a Chinese word list that may reflect the manager's regulatory focus, and then uses the dictionary approach to produce the index of CEO regulatory focus.

The index of CEO regulatory emphasis was established in three distinct processes. First, utilizing previously developed and validated dictionaries [14] and Li (2010)'s concept of constructing text indicators, we read 500 MD&A corpora to determine the characteristics of Chinese text information and compiled a list of words related to regulatory focus based on the MD&A section of the annual report. For instance, phrases associated with promotion regulatory focus included expansion, acquisition, velocity, etc. And words relating to the regulatory emphasis on preventive included maintain, stable, cautious, etc. Second, we utilized the CBOW model to identify comparable words and to increase the seed word collections. Thirdly, we validated the increased word list by calling two experts from industry and academia and comparing MD&A text samples. Lastly, we created dictionaries containing 198 words connected to CEO promotion focus and 180 words related to CEO prevention focus. Our last metric for CEO promotion focus and CEO prevention is the proportion of promotion- and prevention-related words found in the MD&A section.

3.2.3 Moderate variable

The power of the CEO is the first moderator. As a result of previous studies ([48]; Veprauskait and Adams, 2013), we use the PCA method to construct a power index that measures the ability of the CEO to make important decisions. Some of the ways that we evaluate the authority of the CEO are as follows: CEO duality, CEO founder status, CEO ownership, and CEO pay share.

The second moderator is the economic policy uncertainty. Existing research employ three primary methods for gauging economic policy uncertainty: political map, government change, and economic policy uncertainty index [37,38]. Political map and government change are entirely exogenous to business decisions, whereas local government change assesses economic policy uncertainty at the local government level and scarcely reflects economic policy uncertainty at the central government level. In addition, local government changes tend to occur at long intervals, making it difficult to evaluate short-to medium-term shifts in economic policy uncertainty, which are consequently discontinuous and time-varying. Compared to the previous two types of indicators, the EPU index has greater continuity and can more correctly reflect changes in economic policy uncertainty over the short and medium term. In light of Baker et al. [37], this study evaluates economic policy uncertainty by calculating the annual weighted average of the monthly economic policy uncertainty index created jointly by Stanford University and the University of Chicago.

3.2.4 Control variable

We adjusted for variables that may have affected the CEO's capacity for digital transformation. At the firm level, in addition to using the firm fixed-effect, we first controlled for firm size by computing the log of total assets. This was done since previous research suggested that firm size may influence a company's inertia and the resources that are available for change [49]. We managed the success of the company as assessed by a prior two-year average of industry-adjusted ROA. The leverage ratio was calculated as the firm's debt-to-equity ratio. The age of a company was calculated as the natural logarithm of the difference between the year of observation and the year the company was founded.

At the board level, due to the board size will impact the effectiveness and efficiency of board function, it is commonly assumed that board size influences decision making ([50,51]; Cheng, 2008); board size was assessed as the total number of board directors [52]. Financial constraints can significantly hinder a firm's digital transformation efforts by limiting investments in new technologies, digital talent acquisition, and innovation activities [53], therefore we measured financial constraints as the KZ index [54] and use FA stand for. In addition, we adjusted for Share dispersion as defined by the entropy index for the ownership percentage of the top five shareholders in a particular year.

3.3 Model specification

Prior research examining the influence of CEO characteristics on organizational outcomes has employed a variety of methodological approaches. Many studies have utilized cross-sectional designs with OLS regression (e.g., Ref. [55]), while others have adopted longitudinal approaches using panel data analysis (e.g., Ref. [22]). Some researchers have addressed endogeneity concerns through instrumental variables (IV) estimation (e.g., Ref. [56]) or propensity score matching (PSM) techniques (e.g., Ref. [57]). In the context of digital transformation research, scholars have often relied on case studies (e.g., Ref. [8]) or survey-based methods (e.g., Verhoef et al., 2021) to capture the complex nature of digital initiatives.

Building on these methodological foundations, our study employs a panel data analysis approach to examine the relationship between CEO regulatory focus and digital transformation. First, we carried out a Hausman test, which revealed that the fixed-effect model was an appropriate fit for our model. We used year and firm we used year and firm fixed-effects estimation to control for any unobserved stable firm differences over time. In order to ensure the validity and reliability of our results (Abonazel and Shalaby, 2021), we also used modified wald test for groupwise heteroskedasticity. The following is an example of a regression equation:

Equation (1) was developed to examine the link between the control variables and digital transformation. And equation (2) was constructed to explore the relationship between two regulatory priorities of CEOs and the level of digital transformation:(1) DT=β0+β1Controls+∑firm+∑year+ε

(2) DT=β0+β1Pro+β2pre+β3Controls+∑firm+∑year+ε

To examine the moderating influence of CEO power on the link between CEO regulatory focus and digital transformation, Equation (3) was developed:(3) DT=β0+β1Pre+β2Pro+β3Power+β4Power#Pro+β5Power#Pre+β6Controls+∑firm+∑year+ε

To examine the moderating influence of economic policy uncertainty on the relationship between CEO regulatory focus and digital transformation, Equation (4) was developed:(4) DT=β0+β1Pro+β2Pre+β3EPU+β4EPU#Pro+β5EPU#Pre+β6Controls+∑firm+∑year+ε

Regression Equation (5) included all the interaction terms:(5) DT=β0+β1Pre+β2Pro+β3Power+β4EPU+β5Power#Pro+β6Power#Pre+β7EPU#Pro+β8EPU#Pre+∑firm+∑year+ε

The DT is the digital transformation level. The Pro and Pre represent the level of CEO promotion focus and prevention focus respectively. Power measures the level of CEO power and EPU measures the degree of economic policy uncertainty. Control variables are Controls. Firm and Year stand for the dummy variables for the industry and year, respectively. ε stands for random error term. The coefficients of each variable are represented β.

4 Results

4.1 Descriptive analysis

Table 1 displays descriptive statistics and relationships between variables. As established by previous research [14], promotion and prevention focuses are distinct variables; in our sample, they are connected at r = −0.01, which is consistent with previous research on CEO regulatory focus.Table 1 Descriptive statistics and correlations.

Table 1Variables	Mean	SD	1	2	3	4	5	6	7	8	9	10	11	
Pro	6.40	0.82												
Pre	1.90	0.19	−0.01											
Power	0.55	0.20	0.07	−0.03										
Epu	145.20	18.44	0.97	−0.22	0.05									
Size	22.14	1.30	−0.01	0.01	−0.07	−0.01								
ROA	0.04	0.09	0.00	0.02	0.02	0.00	0.02							
Lev	0.38	0.25	−0.01	0.01	−0.01	0.01	0.28	−0.20						
FA	−3.81	0.28	−0.04	0.03	0.03	−0.04	0.00	0.06	−0.10					
Board Size	8.43	1.71	−0.02	0.04	−0.06	−0.02	0.27	0.03	0.09	0.01				
FirmAge	8.55	7.34	−0.01	0.01	−0.13	0.00	0.45	−0.14	0.21	−0.44	0.17			
Share Dispersion	59.47	15.19	−0.06	0.02	−0.19	−0.05	0.07	0.22	−0.14	0.25	0.00	0.34		
Digital Transformation	2.17	1.18	0.06	−0.16	0.14	−0.05	−0.02	−0.08	−0.16	−0.05	−0.09	0.04	0.12	
Notes: N = 12,453 Correlations greater than 0.02 or less than −0.02 are significant at p < .05.

Our study aimed to investigate the relationship between CEO regulatory focus and digital transformation, as well as the moderating effects of CEO power and economic policy uncertainty. Table 2 presents the results of our fixed-effects regression analysis.H1, H2 addressed the direct effects of CEO promotion and prevention focus on digital transformation, respectively. Our results in Model 2 provide strong support for both hypotheses. The coefficient for CEO promotion focus (β = 4.176, p < .001) is positive and significant, supporting H1. This finding suggests that CEOs with a stronger promotion focus are more likely to drive digital transformation initiatives in their organizations. To put this into perspective, a one standard deviation increase in CEO promotion focus is associated with a 16.05 % increase in digital transformation efforts. This aligns with regulatory focus theory, which posits that promotion-focused individuals are more inclined to pursue growth and advancement opportunities, such as those presented by digital transformation. Conversely, the coefficient for CEO prevention focus (β = −4.058, p < .001) is negative and significant, supporting H2. This implies that CEOs with a stronger prevention focus are less inclined to pursue digital transformation strategies. Our analysis indicates that a one standard deviation increase in CEO prevention focus is associated with a 13.05 % decrease in digital transformation activities. This finding is consistent with the notion that prevention-focused individuals are more cautious and risk-averse, potentially viewing digital transformation as a risky endeavor.Table 2 The Effect of CEO Regulatory Focus, CEO power and Economic Policy Uncertainty on Digital Transformation.

Table 2Depnedent Variables: Digital Transformation	
	Model 1	Model 2	Model 3	Model 4	Model 5	
Pro		4.176*** (0.0503)	4.141*** (0.0527)	3.615*** (0.275)	3.693*** (0.277)	
Pre		−4.058*** (0.0516)	−3.930*** (0.0873)	−4.719*** (0.305)	−4.687*** (0.311)	
Pro#Power			0.0645** (0.0302)		0.0564* (0.0306)	
Pre#Power			−0.231* (0.125)		−0.261** (0.125)	
Pro#EPU				0.00393** (0.00189)	0.00317* (0.00191)	
Pre#EPU				0.00452** (0.00209)	0.00532** (0.00211)	
Power	0.185*** (0.0478)	−0.00666 (0.0365)	0.0225 (0.309)	−0.00895 (0.0364)	0.128 (0.309)	
Epu	−0.00127*** (0.000425)	−0.189*** (0.00227)	−0.189*** (0.00227)	−0.227*** (0.0120)	−0.223*** (0.0121)	
Size	0.254*** (0.0160)	0.154*** (0.0123)	0.153*** (0.0123)	0.155*** (0.0122)	0.154*** (0.0122)	
ROA	−0.184** (0.0760)	−0.195*** (0.0579)	−0.197*** (0.0579)	−0.197*** (0.0578)	−0.199*** (0.0578)	
Lev	−0.0886** (0.0448)	−0.109*** (0.0341)	−0.110*** (0.0341)	−0.111*** (0.0341)	−0.111*** (0.0341)	
FA	−0.763*** (0.117)	−0.386*** (0.0891)	−0.385*** (0.0891)	−0.375*** (0.0890)	−0.373*** (0.0890)	
Board Size	0.0209*** (0.00726)	0.00610 (0.00553)	0.00629 (0.00553)	0.00628 (0.00552)	0.00644 (0.00552)	
FirmAge	0.0584*** (0.00712)	0.0460*** (0.00542)	0.0460*** (0.00542)	0.0379*** (0.00714)	0.0398*** (0.00718)	
Share Dispersion	−0.00474*** (0.000906)	−0.00422*** (0.000690)	−0.00416*** (0.000690)	−0.00422*** (0.000689)	−0.00418*** (0.000690)	
Constant	−6.778*** (0.527)	5.454*** (0.430)	5.470*** (0.464)	11.01*** (1.749)	10.34*** (1.764)	
Year dummies	control	control	control	control	control	
Industry Dummies	control	control	control	control	control	
N	12,453	12,453	12,453	12,453	12,453	
R-squared	0.347	0.621	0.622	0.623	0.623	
Notes: (1) *** p < .01, ** p < .05, * p < .1. (2) Standard errors in parentheses.

Our study also examined the moderating roles of CEO power (H3 and H4) and economic policy uncertainty (H5 and H6). The results for these hypotheses are more nuanced and warrant careful interpretation. The interaction between CEO promotion focus and CEO power (Model 3: β = 0.0645, p < .05; Model 5: β = 0.0564, p < .1) is positive and significant, supporting H3. This suggests that CEO power enhances the positive effect of promotion focus on digital transformation. One possible explanation is that powerful, promotion-focused CEOs have greater discretion to implement their strategic visions, including digital transformation initiatives.

The interaction between CEO prevention focus and CEO power (Model 3: β = −0.231, p < .1; Model 5: β = −0.261, p < .05) is negative and significant, supporting Hypothesis 4. This finding indicates that CEO power positively moderates the negative relationship between prevention focus and digital transformation. In other words, as CEO power increases, the inhibiting effect of prevention focus on digital transformation becomes weaker. This suggests that powerful CEOs with a prevention focus are more likely to engage in digital transformation efforts compared to their less powerful counterparts.

The interaction between CEO promotion focus and economic policy uncertainty (EPU) (Model 4: β = 0.00393, p < .05; Model 5: β = 0.00317, p < .1) is positive and significant, supporting H5. This implies that in times of high economic policy uncertainty, the positive effect of promotion focus on digital transformation is strengthened. Promotion-focused CEOs may view digital transformation as a means to navigate uncertain environments more effectively, leading to increased investment in such initiatives during uncertain times.

Similarly, the interaction between CEO prevention focus and EPU (Model 4: β = 0.00452, p < .05; Model 5: β = 0.00532, p < .05) is positive and significant, supporting H6. This suggests that high EPU weakens the negative relationship between prevention focus and digital transformation. In uncertain economic environments, even prevention-focused CEOs may recognize the necessity of digital transformation as a defensive strategy to maintain competitiveness.

4.2 Robust test

4.2.1 Propensity score matching method

Using the PSM approach as an alternative measurement for our explanatory variable, we drew from past studies in an effort to reduce the possibility of endogeneity resulting from the possibility that CEOs are picked based on their ability to exhibit company-aligned traits. Specifically, we utilized the treatment indicator of CEO regulatory focus as opposed to evaluating two regulatory focuses separately [24] and reran the entire model. We used the propensity score matching (PSM) technique to build a sample of CEO regulatory focus. First, we selected the CEO promotion focus as the treatment group and the CEO prevention focus as the control group. These two groups will serve as comparisons in the subsequent steps. Then, if the CEO placed a larger emphasis on promotion than prevention, the treatment group for promotion-focused CEOs was classed as 1 and the control group for prevention-focused CEOs was labeled as 0. In addition, we used logistic regression by way of the effects psmatch function in STATA 15.1 to match observations from the treatment group with those from the control group. This was accomplished by regressing the control variables stated above on the treatment variable. The result reveals that there is no significant difference between the treatment group and the control group, demonstrating the efficacy of this approach.

Next, we reran Model 5, and we used the treatment indicator that symbolizes the CEO's regulatory focus. The regression result has shown in Table 3, and it shows same trend with Table 2.Table 3 The effect of CEO regulatory focus and digital transformaton.

Table 3Depnedent Variables: DT	
CEO Regulatory Focus	1.523* (0.792)	
CEO Regulatory Focus #Power	0.0604* (0.0599)	
CEO Regulatory Focus #EPU	0.00948* (0.00574)	
Power	0.211*** (0.0564)	
Epu	0.00390 (0.00520)	
Size	0.250*** (0.0160)	
ROA	−0.180** (0.0757)	
Lev	−0.0852* (0.0447)	
FA	−0.763*** (0.117)	
Board Size	0.0210*** (0.00724)	
FirmAge	0.0668*** (0.00723)	
Share Dispersion	−0.00463*** (0.000903)	
Constant	−7.511*** (0.875)	
Year dummies	control	
Industry Dummies	control	
N	12,453	
R-squared	0.351	
Notes: (1) *** p < .01, ** p < .05, * p < .1. (2) Standard errors in parentheses.

4.2.2 Alternative measures for digital transformation

We investigated an alternate proxy (DTT) for the independent variable that was based on the frequency counts by the ratio of identified word counts to the total number of words in the MD&A section of each annual report. This was done in order to further answer the endogenous problem of probable reverse causation between CEO regulatory focus and digital transformation. After that, we ran the complete model again, as shown in Table 4, we found support with our primary analysis.Table 4 Alternative measure for digital transformation.

Table 4Depnedent Variables: DTT	
	Model 5	
Pro	2.630*** (0.269)	
Pre	−3.144*** (0.302)	
Pro#Power	0.00733*** (0.00205)	
Pre#Power	−0.00390** (0.00186)	
Pro#EPU	0.0925 (0.122)	
Pre#EPU	0.0680** (0.0297)	
Power	0.00400 (0.00537)	
Epu	0.0804*** (0.00698)	
Size	−0.0947*** (0.0331)	
ROA	−0.182** (0.0865)	
Lev	0.00258*** (0.000671)	
FA	−0.0498 (0.0562)	
Board Size	0.203*** (0.0119)	
FirmAge	−0.0789*** (0.0118)	
Share Dispersion	−0.559* (0.301)	
Constant	10.34*** (1.764)	
Year dummies	control	
Industry Dummies	control	
N	12,453	
R-squared	0.623	
Notes: (1) *** p < .01, ** p < .05, * p < .1. (2) Standard errors in parentheses.

5 Discussion and conclusion

5.1 Discussion

This study investigates the influence of CEO regulatory focus on digital transformation and examines the moderating roles of CEO power and economic policy uncertainty in this relationship. Our findings contribute to the growing body of literature on digital transformation and strategic leadership in several important ways.

Firstly, our results demonstrate a significant relationship between CEO regulatory focus and digital transformation efforts. Specifically, we find that CEO promotion focus is positively associated with digital transformation, while prevention focus exhibits a negative association. These findings align with regulatory focus theory [16] and extend its application to the domain of digital transformation strategies. By incorporating CEO regulatory focus into the digital transformation literature, we respond to calls for a more comprehensive examination of the motivational aspects of CEO characteristics in shaping organizational strategies [58]. This contribution is particularly timely given the increasing importance of digital transformation in contemporary business environments [8].

Our findings complement previous research on the influence of CEO characteristics on digital transformation. While prior studies have focused on CEO narcissism [6] and cognitive flexibility (Raffaelli et al., 2019), our study highlights the role of regulatory focus as a key motivational factor. This extends our understanding of the micro-foundations of digital transformation strategies and provides a more nuanced view of how CEO cognitive traits influence organizational outcomes in the digital age.

Secondly, our study reveals the complex interplay between CEO characteristics and contextual factors in influencing digital transformation. The moderating effects of CEO power and economic policy uncertainty underscore the importance of considering both internal organizational dynamics and external environmental conditions in strategic decision-making processes. Our results indicate that CEO power enhances the positive effect of promotion focus and mitigates the negative effect of prevention focus on digital transformation. This finding contributes to the literature on contextualized strategic leadership [59] by highlighting how organizational power structures can shape the manifestation of CEO cognitive characteristics in strategic decisions.

The role of CEO power in moderating the relationship between regulatory focus and digital transformation aligns with upper echelons theory [11], which posits that organizational outcomes are partially predicted by managerial background characteristics. Our findings suggest that the impact of these characteristics is not uniform but is contingent on the CEO's position and influence within the organization. This extends previous research on CEO power and strategic decision-making [34,36] by demonstrating its relevance in the context of digital transformation.

Furthermore, our analysis of economic policy uncertainty as a moderator provides insights into how external environmental factors influence the relationship between CEO regulatory focus and digital transformation. The strengthening effect of economic policy uncertainty on both promotion and prevention focus impacts suggests that uncertain environments may amplify the influence of CEO cognitive traits on strategic decisions. This finding extends our understanding of how firms navigate digital transformation in volatile economic contexts, building on previous research on the impact of environmental uncertainty on strategic decision-making (Milliken, 1987; McMullen & Shepherd, 2006).

These results have important implications for both theory and practice. From a theoretical perspective, our study bridges the gap between regulatory focus theory and digital transformation literature, offering a more nuanced understanding of the antecedents of digital transformation initiatives. It also contributes to the broader field of strategic leadership by examining the contextual factors that moderate the influence of CEO characteristics on organizational outcomes. This approach responds to calls for more contextualized approaches to leadership research [60,61].

From a practical standpoint, our findings emphasize the importance of considering CEO regulatory focus in the selection and evaluation of top executives, particularly in the context of digital transformation strategies. Boards of directors may benefit from assessing candidates' regulatory focus when appointing CEOs, especially when rapid digital transformation is a strategic priority. This aligns with research highlighting the importance of fit between CEO characteristics and organizational strategies [62].

Additionally, organizations should be aware of how CEO power and economic policy uncertainty can amplify or attenuate the effects of CEO regulatory focus on digital transformation efforts. This suggests the need for governance mechanisms that can balance the influence of CEO characteristics with organizational needs and environmental demands. It also highlights the importance of developing organizational resilience to navigate digital transformation in uncertain economic environments [63].

5.2 Conclusion

By using a panal dataset of 2696 Chinese listed companies from 2008 to 2023, our study provides significant insights into the complex relationship between CEO regulatory focus and digital transformation, as well as the moderating roles of CEO power and economic policy uncertainty. The results demonstrate that CEO promotion focus positively influences digital transformation efforts, while prevention focus has a negative impact. Importantly, we find that these relationships are not static but are moderated by both internal organizational factors (CEO power) and external environmental conditions (economic policy uncertainty). CEO power appears to enhance the positive effect of promotion focus and the negative effect of prevention focus on digital transformation. Similarly, economic policy uncertainty strengthens the impact of both promotion and prevention focus on digital transformation efforts. These findings contribute to our understanding of upper echelons theory and regulatory focus theory in the context of digital transformation, highlighting the importance of considering both individual CEO characteristics and contextual factors in explaining organizational strategic decisions.

5.3 Limitations and future research

Our work has several limitations, and it could be channels to the future research. First, although this paper uses the textual analysis and machine learning method to measure the overall situation of the digital transformation of enterprises, it has not yet achieved an accurate description of the digitalization of various links within the enterprise (such as R&D, production, sales, etc.). Future research can further explore measurement of digitalization in more detail. Also, future study could use the case study or other qualitative method to explicitly explore the relationship between CEO regulatory focus and firm's digital transformation.

Second, although our work selected internal governance factor (CEO power) and external environmental factor (Economic policy uncertainty) as our moderating variables, that is not enough. There could be alternative moderating variable, for instance, institutional theory can be an additional perspective for analysis. Recent study has demonstrated the existence of isomorphic pressures in the setting of digital transformation and the corresponding corporate response (Leonhardt and Hanelt, 2018; [4]). Future studies could investigate CEOs different reaction to the different institutional pressure when they engage in digital transformation.

Third, our only work centered on investigating the connection between the regulatory focus of CEOs and digital transformation. The results suggest that certain CEO regulatory focus can have a significant impact to digital transformation. However, a relevant extension of our work could be link other emerging TMT roles to digital trans-formation. There are several independent variables could be of interest. For example, in addition to CEOs, CDOs have become an important role to firm's digital transformation ([4]; Georgakakis et al., 2019). Future studies could investigate the relationship between CDO regulatory focus and digital transformation. While recent research argued that CDOs tend to complement other TMT roles [4], it might also be interesting to disentangle the interfaces between the CDOs and other excutives.

Overall, future research can advance the measurement of digital transformation, use qualitative method to build this framework, focus more contextual factors such as institutional pressure, and bring other TMT role into this framework.

Data availability statement

The sample data of this study are from the online database. The name and login link of the database are as follows: China Stock Market and Accounting Research database (https://data.csmar.com/) and WinGo database (http://www.wingodata.com/). Further inquiries can be directed to the corresponding author.

CRediT authorship contribution statement

Zaizhi Lou: Writing – original draft. Wangxiongjie Zheng: Writing – review & editing, Writing – original draft.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
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