Digital Transformation and Firm Performance: The Moderating Role of CFO Co-optation

Abstract

Purpose: This study tests whether digital transformation affects firm accounting performance in Indonesian manufacturing firms, and whether Chief Financial Officer (CFO) co-optation moderates that effect.Research Methodology: This study analyzes 285 firm-year observations from 95 Indonesia Stock Exchange manufacturing firms (2022–2024) using Fixed Effects panel regression with Moderated Multiple Regression, applying one-tailed significance tests at the 10%, 5%, and 1% levels. The study measures digital transformation through text-mining keyword frequency in annual reports and codes CFO co-optation as a binary indicator for CFO appointment during the sitting Chief Executive Officer (CEO) tenure. The study estimates a Fixed Effects panel regression in Stata 17, selected through Chow and Hausman tests, with Moderated Multiple Regression testing the interaction effect.Results: Digital transformation lowers Return on Assets at the 10% significance level. CFO co-optation lowers ROA at the 5% level, but the interaction between digital transformation and CFO co-optation raises ROA at the 5% level, offsetting and reversing the direct penalty.Conclusions: Executive alignment through CFO co-optation buffers the short-term cost digital transformation imposes on profitability, consistent with Resource Orchestration Theory operating alongside Agency Theory rather than replacing it.Limitations: The sample covers manufacturing firms only, over a three-year window, using a keyword-based digital transformation proxy.Contributions: The findings extend Agency Theory and Resource Orchestration Theory into a joint governance-technology model and offer Indonesian regulators, boards, and CFOs concrete guidance on staffing and timing digital transformation initiatives.