Curvilinear Dynamics of Performance Shortfalls and Digital Innovation: The Moderating Role of IT Expertise

This study explores the impact of performance feedback on digital innovation. While prior research often focuses on rational capability-based perspectives, we adopt a behavioral strategy lens to examine how performance feedback shapes digital innovation decisions. Using a sample of Chinese manufacturing firms from 2004 to 2021, we find an inverted U-shaped relationship between performance shortfalls and digital innovation, and board and CEO IT expertise flatten the inverted U-shaped curve. These findings are supported by a rigorous empirical design, including extensive potential endogeneity analysis and robustness checks. This study contributes to the literature by bridging behavioral strategy and digital innovation, offering new insights into how performance feedback, moderated by IT leadership, shapes strategic innovation decisions. It also extends the understanding of IT leadership in mitigating cognitive biases and enhancing firms' ability to respond strategically to performance signals in high-risk, long-term digital initiatives.