Digital transformation and firm performance: the role of factor allocation

Abstract

ABSTRACT In the era of the digital economy, digital transformation is an important strategic choice that firms can make to take advantage of the new technological revolution and new opportunities for industrial transformation. Taking Chinese listed firms from 2009 to 2019 as the research sample, we examine the impact and mechanism of digital transformation on firm performance. Evidence shows that digital transformation significantly improves firm performance, and this conclusion remains valid after considering endogeneity issues and conducting robustness tests. Heterogeneity analyses find that the promotional effect of digital transformation on firm performance is more prominent among firms with high industry concentration and a high participation rate in global value chains than others. The mechanism tests show that digital transformation optimizes factor allocation, through substitution, synergy and correction effects, that improve firm performance in turn. Our results provide the micro evidence from China on the economic effects of the digital transformation, which has important policy implications for further releasing digital vitality, encouraging the sharing of digital dividends, optimizing the allocation of factors, and promoting the high-quality development of the real economy.