How Smart Shall We Be? Optimal Distinctiveness of Digitalization and Innovation Performance

Although scholars have tried to explain the relationship between digitalization and innovation, results are mixed from different perspectives. Building on optimal distinctiveness theory (ODT), upper echelons theory, perspective of socio-emotional wealth, and heterogeneity of chief executive officer (CEO) power, we explore how firms’ distinctiveness of digitalization affects their innovation performance. We theorize that there is an inverted U-shaped relationship between the distinctiveness of digitalization and firms’ innovation performance. We further propose that this inverted U-shaped relationship can be strengthened by CEO's digital experience and weakened by family CEOs. Based on 5013 observations of listed manufacturing firms in China from 2011 to 2020, we find empirical support for our hypotheses. Our study contributes to research on digitalization, innovation, ODT, and CEO literature.