The effects of enterprises' attention to digital economy on innovation and cost control: Evidence from A-stock market of China

Abstract

China's digital economy has made amazing achievements, which brings deep impacts on enterprise innovation. Based on unbalance panel dataset covering more than two thousand manufacturing listed companies in A-stock market of China during the 2011 to 2018 period, this paper employs two-way fixed effects (TWFE) model to examine the effects of attention to digital economy on enterprise innovation. The primary explanatory variable in this research is attention degree that enterprises pay to the digital economy measured by Python technology and text analysis. Additionally, the intermediate effect model is adopted to check the underlying mechanisms of cost control in enterprises, which is also impacted by the digital economy. Several novel findings emerge. First, the number of patent applications increase as enterprises pay more attention to the digital economy. Digital economy has positive impacts on different innovation processes, not only promotes invention, but also promotes appearance design. Second, digital technology and business model as two aspects of digital economy have different effects on innovation. The attention to digital technology has positive impacts on invention patents and design patents, while business model only has a positive impact on design patents. Third, enterprises that pay attention to the digital economy are more likely to increase their R&D expenditure and decrease their sales and finance expenses, which encourages the innovation output. This paper explains these findings in the context of China and makes some specific suggestions for enterprises to promote digital transformation and innovation.