<p>Drawing on the knowledge-based view (KBV), this paper examines the impact of digital knowledge infrastructure on investment efficiency and the moderating role of CEO characteristics. Analyzing Chinese A-share firms (2009–2019), we find a counterintuitive result:&#xa0;digital transformation significantly increases investment distortion, specifically overinvestment. In a knowledge economy, investment efficiency reflects the optimal allocation of intangible capital and its complementarity with skilled labor. Our findings suggest that while the codification of tacit knowledge enhances transparency, it simultaneously escalates Type I agency costs and coordination costs in complex knowledge work. Our results are robust to triangulation with intangible investment and digital patents, confirming that our text-based proxy captures substantive capability-building rather than mere disclosure. Furthermore, these distortionary effects are intensified by overconfident or highly educated CEOs, who may overestimate digital synergies, whereas older CEOs mitigate them. The results are particularly evident in firms viewing digitalization as an expansionary tool rather than a mechanism for organizational learning. This study clarifies the tensions in digital knowledge utilization, helping align executive incentives with digital-era resource allocation.</p>