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Digital transformation and corporate diversification

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  • Lv, Jin Roc
  • Ye, Chenghui
  • Yang, Chen

Abstract

We find that a one-standard-deviation increase in digital transformation is associated with a 0.0579-standard-deviation increase in corporate diversification. This finding is robust to alternative measures of digital transformation and corporate diversification, sample constructions, and the control for potential endogeneity issues. In additional analyses, we first show that the effect of digital transformation on corporate diversification is more pronounced in regions with less developed external markets, in industries with a lower level of competition, and in firms with greater R&D intensity; second, digital transformation affects corporate diversification through the reductions in cost stickiness and advertising expenses; third, digital transformation has a stronger effect on related than unrelated diversification; fourth, digital transformation alters the effect of diversification on firm value. Taken together, these results are largely consistent with the resource view in the literature on corporate diversification, which states that firms diversify when excess resources are available.

Suggested Citation

  • Lv, Jin Roc & Ye, Chenghui & Yang, Chen, 2025. "Digital transformation and corporate diversification," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x2500232x
    DOI: 10.1016/j.pacfin.2025.102895
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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