Reducing asymmetric cost behaviors: Evidence from digital innovation

Abstract

This study quantifies the impact of digital innovation on corporate performance, offering insights into the sustainability of digital innovation’s impact and providing guidance for firms embarking on their digital innovation journey. We examine the effect of digital innovation on cost stickiness using patent reports spanning from 2007 to 2022. The baseline analysis results reveal that digital innovation significantly mitigates cost stickiness in companies. This finding remains robust after addressing endogeneity concerns and conducting various robustness tests. We probe potential mechanisms and discover that digital innovation reduces cost stickiness by enhancing the quality of internal controls, improving resource-adjustment efficiency, and addressing managerial over-optimism. Heterogeneity analysis indicates a more pronounced impact of digital innovation on reducing asymmetric cost behaviors in larger firms, those beyond the growth stage, and in regions with active digital procurement, well-developed digital taxation governance, and sound judiciary infrastructures. Additionally, our expanded analysis confirms the financial benefits of digital innovation in reducing cost stickiness. A notable discovery is the negative correlation between digital transformation and cost stickiness within digitally innovative firms, underscoring the greater significance of digital innovation over mere digitization. Overall, this study significantly advances our understanding of how digital innovation influences cost management strategies.