The impact of digital transformation on firm's financial performance: evidence from China

Abstract

PurposeThis study aims to investigate the influence of digital transformation on the overall financial performance of firms, with a specific focus on Chinese-listed companies from 2010 to 2021. It seeks to understand the impacts on various accounting and financial indicators in emerging economies such as China.Design/methodology/approachThis study employs a text-mining approach to construct a digital transformation index based on the data sample of 11,814 firm-year observations from China’s A-share listed companies. This index serves as a proxy to measure the extent of digital transformation and its impact on financial performance and health.FindingsThe findings indicate that digital transformation significantly enhances overall financial performance and health, as evidenced by increased profitability, reduced operational costs, and lowered financial risks. The study reveals a time-lagged effect, where the benefits of digital transformation become more apparent after about one year. Further analysis shows that the value of digital transformation is more evident in a firm’s asset items. This raises the possibility of recognising the by-product, such as data resources, in the digital transformation process.Originality/valueThis research offers a unique contribution by linking digital transformation to financial performance using a large dataset from China's A-share listed firms. Doing so enhances our understanding of the tangible effects of digital transformation on corporate performance. Furthermore, this research provides valuable insights for the advancement of future accounting practices and the development of standards.

Enhancing digital transformation: exploring the role of supply chain diversification and dynamic capabilities in Chinese companies

“…Vial (2019) DT aims to catalyze organizational change through the adoption of elements such as information, communication, and connectivity technologies Warner and W€ ager (2019) DT as leveraging digital technology to expand business opportunities, enhance customer experience, streamline business processes, and innovate business models Verhoef et al (2021) DT utilizes digital technologies to overhaul organizations' management, business, and commercial models, with data serving as a critical component Zhu and Li (2023) Digital technologies underpin DT, encompassing various processes to restructure a company's internal framework, culture, strategy, products, services, and business models Chen and Zhang (2024) DT involves integrating digital technologies, processes, and strategies to reshape organizations and their operations in response to the evolving business environment Source(s): Authors' own creation Table 3. Some literature on the definition of digital transformation (DT) IMDS 124,7 within the supply chain, as shown in Table 4, which underscores that enterprises should consider leveraging complementary and synergistic internal and external resources and capabilities to achieve successful DT.…”