How Government Subsidies Facilitate the Digital Transformation of Suppliers

Abstract

Digital transformation is increasingly recognized as a key driver of sustainable development, enabling suppliers to improve efficiency, reduce resource consumption, and adapt to changing market demands. However, it remains a challenging process for suppliers, often hindered by resource and capacity constraints. This study investigates how government subsidies can facilitate supplier digital transformation, considering supply chain diffusion and local government competition dynamics. Using data from A-share listed companies in China between 2010 and 2021, our analysis reveals that government subsidies significantly promote supplier digital transformation by encouraging a more diversified downstream customer base. Moreover, customer digital transformation can facilitate supplier digital transformation, but spillover effects are higher within the same jurisdiction than across different jurisdictions. This study further identifies that the impact of government subsidies is more pronounced under higher opportunistic risk but is constrained by systemic risk. Additionally, suppliers with higher human capital and a smaller digital divide with customers exhibit greater effectiveness in adopting innovation diffusion. These findings provide valuable insights into optimizing local government subsidies policies to enhance supplier digital transformation and contribute to the broader goal of sustainable development.