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The Unreliable Impact of Digital Transformation on Firm Performance: A Theoretical Framework and Empirical Test Based on Chinese Listed Firms

Author(s)

Zijian Zhou

Affiliation(s)

University of Birmingham, Birmingham, B15 2TT, United Kingdom

Abstract

Two decades of firm-level research have produced a strikingly unstable answer to a simple question: does digital transformation pay? Estimates of the effect of digital transformation on firm performance range from strongly positive to statistically indistinguishable from zero to significantly negative, often within the same national setting and the same time window. This paper argues that the instability is not primarily a data problem or an identification problem, but a theoretical one. Digital technologies are general purpose technologies whose returns are conditional on the co-invention of complementary intangible assets - reorganised workflows, redistributed decision rights, upgraded human capital, and reconstructed data governance. I formalise the distance between a firm's accumulated digital technology stock and its stock of complementary organisational capital as the complementarity gap, and argue that this latent quantity, rather than digital intensity itself, governs performance outcomes. The framework generates five testable propositions concerning the average effect, its temporal shape, its moderation by organisational capital and environmental turbulence, and its distributional consequences across the productivity frontier. The author then develops a full empirical research design to test these propositions on Chinese A-share listed firms over 2013–2024, combining text-based measurement of digital transformation with disclosed human-capital and organisational-structure data, and combining staggered difference-in-differences estimation around the Broadband China pilot programme with heterogeneity-robust estimators, shift-share instrumentation, and threshold regression. The paper contributes a reconciling framework for a fragmented literature, an operationalisable construct that can be measured with existing archival data, and a research protocol that other scholars can adopt or contest.

Keywords

Digital Transformation; Firm Performance; Complementary Assets; Staggered Difference-in-Differences; Chinese listed Firms

References

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