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Digital transformation and the impact of local tournament incentives: Evidence from publicly listed companies in China

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  • Hua, Zesu
  • Yu, Yihua

Abstract

In today's digital era, digital transformation has become an essential strategic priority for enterprises. This study examines how local peer compensation affects enterprise digital transformation, using CEO compensation data from Chinese listed companies between 2010 and 2019. Our research emphasizes the crucial role of local tournament incentives in advancing enterprise digitalization, primarily by enhancing digital investment and reducing financial constraints. Additionally, we find stronger positive effects in non-state-owned enterprises, high-risk-taking enterprises, enterprises with long-serving CEOs, and enterprises whose CEOs are not near retirement age. These findings suggest competition among CEOs for higher compensation in neighboring businesses drives digitalization within enterprises.

Suggested Citation

  • Hua, Zesu & Yu, Yihua, 2023. "Digital transformation and the impact of local tournament incentives: Evidence from publicly listed companies in China," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005767
    DOI: 10.1016/j.frl.2023.104204
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    More about this item

    Keywords

    Local tournament incentives; CEO compensation; Digital transformation; Enterprise software; Financial constraints;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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