The non-linear link between TMT cash compensation and digital transformation

Yinjie Han; Peng Cheng

doi:10.1016/j.frl.2025.108811

The non-linear link between TMT cash compensation and digital transformation

Yinjie Han, Peng Cheng^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

This study analyzes the influence of Top Management Team (TMT) cash incentives on corporate Digital Transformation (DT) and explores the presence of a non-linear relationship between them. We use machine learning methods (XGBoost and SHAP analysis) to identify companies in China and show that cash rewards have a non-linear impact on digital transformation when the top management team's pay is higher, and this impact is stronger in state-owned companies. Robustness checks using Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods also confirm the results. This research has implications for policymakers seeking to boost digital innovation and shed light on the design of suitable TMT remuneration.

Original language	English
Article number	108811
Journal	Finance Research Letters
Volume	86
DOIs	https://doi.org/10.1016/j.frl.2025.108811
Publication status	Published - 1 Dec 2025

Keywords

Digital transformation
Incentive structure
Non-linear effects
SHAP values
XGBoost

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10.1016/j.frl.2025.108811

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title = "The non-linear link between TMT cash compensation and digital transformation",

abstract = "This study analyzes the influence of Top Management Team (TMT) cash incentives on corporate Digital Transformation (DT) and explores the presence of a non-linear relationship between them. We use machine learning methods (XGBoost and SHAP analysis) to identify companies in China and show that cash rewards have a non-linear impact on digital transformation when the top management team's pay is higher, and this impact is stronger in state-owned companies. Robustness checks using Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods also confirm the results. This research has implications for policymakers seeking to boost digital innovation and shed light on the design of suitable TMT remuneration.",

keywords = "Digital transformation, Incentive structure, Non-linear effects, SHAP values, XGBoost",

author = "Yinjie Han and Peng Cheng",

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doi = "10.1016/j.frl.2025.108811",

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AU - Cheng, Peng

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N2 - This study analyzes the influence of Top Management Team (TMT) cash incentives on corporate Digital Transformation (DT) and explores the presence of a non-linear relationship between them. We use machine learning methods (XGBoost and SHAP analysis) to identify companies in China and show that cash rewards have a non-linear impact on digital transformation when the top management team's pay is higher, and this impact is stronger in state-owned companies. Robustness checks using Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods also confirm the results. This research has implications for policymakers seeking to boost digital innovation and shed light on the design of suitable TMT remuneration.

AB - This study analyzes the influence of Top Management Team (TMT) cash incentives on corporate Digital Transformation (DT) and explores the presence of a non-linear relationship between them. We use machine learning methods (XGBoost and SHAP analysis) to identify companies in China and show that cash rewards have a non-linear impact on digital transformation when the top management team's pay is higher, and this impact is stronger in state-owned companies. Robustness checks using Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods also confirm the results. This research has implications for policymakers seeking to boost digital innovation and shed light on the design of suitable TMT remuneration.

KW - Digital transformation

KW - Incentive structure

KW - Non-linear effects

KW - SHAP values

KW - XGBoost

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DO - 10.1016/j.frl.2025.108811

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SN - 1544-6123

VL - 86

JO - Finance Research Letters

JF - Finance Research Letters

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ER -

The non-linear link between TMT cash compensation and digital transformation

Abstract

Keywords

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