examining the interactive effect of digital transformation on explaining the relationship between managerial overconfidence and corporate innovation

This study aims to examine the interactive effect of digital transformation on explaining the impact of managerial overconfidence on corporate innovation. technological advancements and the development of digital technologies have significantly influenced the characteristics of economies and businesses, driving organizations to adopt technologies such as artificial intelligence, big data, and the internet of things. managerial overconfidence, as a key behavioral trait, can impact strategic decision-making and organizational innovation. data was collected from 113 companies listed on the tehran stock exchange from 2016 to 2023. models were estimated using generalized least squares (gls) regression with two-way fixed effects. the results indicate that: 1) managerial overconfidence significantly enhances corporate innovation, with overconfident managers showing a greater tendency to support creative projects; 2) digital transformation is positively and significantly related to corporate innovation, boosting investment in innovative activities; 3) an increase in managerial overconfidence reduces digital transformation, as decisions lacking thorough analysis can impair transformation efficiency; 4) digital transformation acts as a full mediator in the impact between managerial overconfidence and corporate innovation (sobel test: t = 2.306, p = 0.0132). this study elucidates the mediating role of digital transformation in the interplay between managerial overconfidence and corporate innovation, offering a comprehensive theoretical framework. the findings provide valuable guidance for policymakers and managers on leveraging digital technologies and managing behavioral risks. this study aims to examine the interactive effect of digital transformation on explaining the impact of managerial overconfidence on corporate innovation. technological advancements and the development of digital technologies have significantly influenced the characteristics of economies and businesses, driving organizations to adopt technologies such as artificial intelligence, big data, and the internet of things. managerial overconfidence, as a key behavioral trait, can impact strategic decision-making and organizational innovation. data was collected from 113 companies listed on the tehran stock exchange from 2016 to 2023. models were estimated using generalized least squares (gls) regression with two-way fixed effects. the results indicate that: 1) managerial overconfidence significantly enhances corporate innovation, with overconfident managers showing a greater tendency to support creative projects; 2) digital transformation is positively and significantly related to corporate innovation, boosting investment in innovative activities; 3) an increase in managerial overconfidence reduces digital transformation, as decisions lacking thorough analysis can impair transformation efficiency; 4) digital transformation acts as a full mediator in the impact between managerial overconfidence and corporate innovation (sobel test: t = 2.306, p = 0.0132). this study elucidates the mediating role of digital transformation in the interplay between managerial overconfidence and corporate innovation, offering a comprehensive theoretical framework. the findings provide valuable guidance for policymakers and managers on leveraging digital technologies and managing behavioral risks.