Systemic digital innovation plays a pivotal role in driving firms’ future growth. As key decision-makers in strategic planning, executives play a critical role in promoting digital innovation. Therefore, how to effectively motivate executives to engage in systemic digital innovation remains an important research question. Drawing on principal-agent theory, this study examines how equity incentives promote systemic digital innovation, a form of firm-level digital technological innovation embedded in organizational governance and resource allocation systems. Using the panel data from Chinese A-share listed firms over 2007–2024, we investigate the governance mechanisms in a major emerging market context. The results show that equity incentives significantly promote systemic digital innovation. Managerial risk-taking and long-term orientation partially mediate this relationship, indicating that incentive alignment reshapes executives’ behavioral orientations toward intertemporal decision-making. Moreover, executives’ IT background strengthens the positive effect of equity incentives, whereas financing constraints weaken it. These findings highlight equity incentives as a governance mechanism that facilitates sustained systemic digital innovation in emerging market firms.
Bai et al. (Fri,) studied this question.