Can digital transformation improve market and ESG performance? Evidence from Chinese SMEs

Abstract

Promoting the digital transformation of businesses and ESG (Environmental, Social, and Governance) performance can significantly benefit from research on the impact of small and medium-sized enterprise (SME) digitalization on firm market performance and ESG. This study presents a theoretical framework for the impact of digitization on small firms' commercial and social performance. It examines the relationships among digital resources, digital organization, digital adoption, digital innovation culture, firm competitiveness, digital management, market performance, and ESG performance. This study examines the influence of digital transformation on market and ESG performance in Chinese small and medium-sized enterprises (SMEs). Utilizing 331 valid questionnaires, we conducted a comprehensive modeling and empirical analysis through the application of fsQCA and PLS-SEM methodologies, revealing the following: 1) Digital resources, organizing, adoption, management, and firm competitiveness indirectly and positively affect ESG through the intermediary variable (firm market performance). 2) There is no precondition for establishing ESG; firm competitiveness is sufficient for ESG. 3) Firm market performance positively affects ESG, which is also a sufficient condition for ESG. 4) Innovatively discovering the moderator variable (digital innovation culture) positively modulates two paths (digital adoption and firm competitiveness, digital adoption and digital management). It provides theoretical, practical, and policy references to helping SMEs improve their competitiveness, performance, and practice of ESG.