In today’s dynamic business landscape, digital innovation is crucial for organizational success, given the transformative potential of technology. Navigating this digital frontier by means of digital innovation is not just a strategic choice but a necessity for organizational agility and competitiveness. A key factor in that regard are the decisions of firms’ Chief Executive Officers (CEOs), which depend on the CEOs’ characteristics. In this study, we argue that CEOs’ optimism is critical for digital innovation. Optimism refers to a psychological disposition characterized by a positive outlook and hopeful expectations that has a profound influence on shaping individuals’ responses to challenges, fostering resilience, and serving as a catalyst for innovative thinking. Acknowledging that too much optimism can become detrimental for innovation because it may lead to overconfidence, underestimation of risks, and neglect of potential challenges, we propose an inverted-U relationship between CEO optimism and digital innovation outcomes. Further, we explore the influence of market dynamism on this relationship. Drawing from an extensive dataset comprising 3,288 organization-year observations, our analysis widely supports our theorizing. We contribute to the literature by unveiling an inverted U-shape relationship between CEO optimism and digital innovation that diminishes with growing market dynamics, and by providing an NLP-based measure for CEO optimism.
