The effects of digital economy on breakthrough innovations: Evidence from Chinese listed companies

Abstract

The rapid development of digital economy challenges the innovation theory under the traditional economic background. The consequences of digital economy on breakthrough innovations remain unknown, especially in emerging markets. Using patent data of 1728 listed companies in China from 2010 to 2020, we study the impact of digital economy on firms' breakthrough innovations. The results show that digital economy can significantly promote breakthrough innovations in Chinese firms in the short and long term. In contrast to existing research documenting a tension between breakthrough and incremental innovations, we find that the promoting effect on breakthrough innovations does not come at the expense of incremental innovations. Further analysis reveals that digital economy provides resources and motivations for firms to develop breakthrough innovations by easing financing constraints, promoting talent aggregation, and increasing uncertainty in the competitive landscape. Additionally, digital economy can promote breakthrough innovations in non-state-owned, growing and aging firms more than in state-owned and mature firms; and its positive impact is more significant in high-tech firms than in non-high-tech firms.