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Rethinking corporate diversification in emerging markets: How digital transformation reshapes strategies in China

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  • Tao, Jiayi
  • Zhang, Xinhe
  • Wu, Xiaofei
  • Zhou, Qin

Abstract

This study investigates how digital transformation reshapes corporate diversification strategies in Chinese listed firms, underpinned by dynamic capabilities theory. Our analysis suggests that digital transformation amplifies diversification benefits by mitigating financial constraints and enhancing risk perception. Utilizing a panel dataset of 36,822 firm-year observations from 2008 to 2021, this study applies fixed-effects regression models, instrumental variable techniques, and heterogeneity analyses. Our empirical analysis reveals that digital transformation significantly promotes corporate diversification, an effect that is particularly pronounced in non-SOEs, eastern regions, and the manufacturing sector. We identify two key mechanisms driving this relationship: the mitigation of financial constraints and the enhancement of risk perception. Robustness tests confirm these findings. Additionally, digital transformation mitigates the negative impact of diversification on total factor productivity (TFP). While high economic policy uncertainty suppresses diversification, digital transformation helps offset this effect. These findings advance the strategic management literature by demonstrating how digital transformation helps firms overcome policy uncertainty and diversification challenges, offering policy insights for promoting digital adoption in China's evolving economic landscape.

Suggested Citation

  • Tao, Jiayi & Zhang, Xinhe & Wu, Xiaofei & Zhou, Qin, 2026. "Rethinking corporate diversification in emerging markets: How digital transformation reshapes strategies in China," Technology in Society, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:teinso:v:84:y:2026:i:c:s0160791x25002763
    DOI: 10.1016/j.techsoc.2025.103086
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