Can digital technology adoption promote environmental innovation in small and medium-sized enterprises (SMEs)? Evidence from China

Abstract

Despite the widespread acknowledgment in both industry and academia of the substantial potential of digital technology for fostering innovation and sustainable development, there remains uncertainty surrounding whether integrating these technologies can improve environmental innovation in small and medium-sized enterprises (SMEs) due to the liability of smallness. This paper utilizes a panel dataset comprising 1036 Chinese manufacturing SMEs listed between 2011 and 2020 to investigate the influence of different digital technology adoption strategies—specifically, digital technology adoption breadth (DTAB) and digital technology adoption depth (DTAD)—on SMEs' environmental innovation. Additionally, we examine the moderating effects of government subsidies and industrial agglomeration on these relationships. The results reveal that (1) DTAB has a negative effect on SMEs' environmental innovation; (2) DTAD positively affects SMEs' environmental innovation; and (3) both government R&D subsidies and environmental subsidies can positively moderate the relationships among DTAB, DTAD, and environmental innovation within SMEs. These findings are extended and upheld after undergoing a series of further analyses, endogeneity analyses, and robustness tests. Our research suggests that SMEs are not as suited to the broad adoption of digital technologies as large firms; instead, they should focus on the deep application of specific digital technologies to promote environmental innovation.