Digital transformation and its effect on resource allocation efficiency and productivity in Chinese corporations

Abstract

Digital technology improves the capacity for collecting, processing, and sharing information, enabling corporations to optimize resource allocation. Based on data from Chinese A-share listed corporations between 2008 and 2020, the study investigates the relationship between digital transformation and resource reallocation. The findings indicate that digital transformation significantly enhances the allocation efficiency of capital and labor. Specifically, doubling the frequency of digital transformation terms can correct capital input deviation by approximately 9.5 % and labor input deviation by around 7.3 %. The enhancement primarily stems from mitigating excessive input inefficiencies, while demonstrating insignificant effects on underinvestment scenarios. Moreover, these results are consistent across an array of robustness tests, including Bartik IV and difference-in-differences strategy using the “Broadband China” policy as a quasi-natural experiment. Mechanism analysis reveals that alleviating external information frictions and enhancing internal information utilization constitute the primary channels through which digital transformation fosters resource allocation efficiency. Furthermore, digital transformation not only raises the overall total factor productivity (TFP) through resource reallocation but also directly fosters the growth of corporate TFP.