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Digital transformation is essential for commercial banks to maintain long-term competitiveness in the digital economy era. This study aims to investigate the relationship between inside debt and the bank's digital transformation.

This study set up a quasi-natural experiment based on implementing the executive compensation deferral system in the Chinese banking industry. Using the annual panel data of 180 commercial banks in China from 2007 to 2021, this study employed the difference-in-differences (DID) method to conduct an empirical analysis.

This study confirms a significant statistical relationship between inside debt and the bank's digital transformation, and managerial myopia is the transmission channel of inside debt affecting the bank's digital transformation. Furthermore, the development of Internet finance and the enhancement of bankers' confidence will improve the contributions of inside debt to the bank's digital transformation.

This study contributes to the literature on inside debt and the bank's digital transformation. It has specific policy value for the scientific design of the banking compensation mechanism and accelerating banks' digital transformation.