Abstract
Digitalization has important advantages for firms, for instance with respect to innovation and financial performance. These advantages are particularly relevant for SMEs. Nevertheless, SMEs lag behind larger firms regarding digitalization. This is troublesome because the COVID-19 pandemic worked as accelerator for digitalization, which suggests that firms that do not adapt will face competitive disadvantages. We propose that CEO overconfidence relates positively to digitalization in SMEs. We conduct two research studies. In study 1, we find evidence in favor of a positive relation between CEO overconfidence and digitalization. In study 2, we investigate the relation during the COVID-19 pandemic. Our results indicate that the positive relation persists during economic crises such as the COVID-19 pandemic. Moreover, we find that the relation between CEO overconfidence and digitalization is stronger in industries with low environmental dynamism. Our study offers two main contributions. First, we advance the upper echelons perspective by explaining how CEO overconfidence relates to digitalization. Second, we contribute by integrating the dynamic capabilities framework into the upper echelons perspective in the context of dynamic environments.
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