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Digital transformation, innovation investment and quality

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  • Li, Fei
  • Zhang, Nana

Abstract

This study investigates the impact of digital transformation (DT) on ambidextrous innovation investment and innovation quality, using panel data from Chinese A-share listed companies between 2011 and 2022. By applying fixed-effects regression and conducting robust endogeneity tests—including Difference-in-Differences (DID), Propensity Score Matching (PSM), and Instrumental Variable (IV) methods—the findings reveal that DT promotes exploitative innovation while suppressing exploratory innovation. Moreover, the disparity between these two forms of innovation follows an inverted U-shaped relationship with innovation quality. Mechanism analysis shows that DT increases industry competition and reduces risk tolerance, leading firms to prioritize exploitative innovation. This effect is more pronounced in firms with higher DT levels and is stronger in non-state-owned, smaller firms, and those in non-knowledge-intensive industries. The study provides strategic insights for firms looking to optimize their innovation strategies in the digital era.

Suggested Citation

  • Li, Fei & Zhang, Nana, 2025. "Digital transformation, innovation investment and quality," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001655
    DOI: 10.1016/j.frl.2025.106901
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