The ripple effect: Does digital transformation spark enterprises' technological innovation in supply chains?

While digitalization is increasingly recognized as a critical driver of competitive advantage, existing literature has predominantly examined its impact on supply chain resilience and efficiency, with limited attention to its spillover effects across supply chains. This study addresses this gap by introducing the supply chain spillover perspective to investigate how digital transformation (DT) in focal firms influences their customers' technological innovation. We also analyze the direct and indirect mechanisms through which this effect occurs. Using panel data from Chinese listed companies (2018–2023), we employ a two-way fixed effects model and a Probit model to assess the impact of focal firms' DT on customers' innovation input and output probabilities. Our results indicate that focal firms’ DT significantly enhances their customers' innovation input and output. Grounded in signaling theory, open innovation, and market competition theories, we find that alleviating financing constraints, fostering cooperative innovation, and intensifying industry competition are main indirect impact mechanisms. Heterogeneity analyses reveal that the effect is more pronounced in industries with higher levels of digitalization, among state-owned enterprises in terms of innovation input and private firms in terms of output, as well as among market-leading firms and within supply chains characterized by stronger inter-firm linkages. Our findings suggest that managers should formulate DT strategies from an industrial chain perspective, enhancing their technological innovation capabilities by establishing deep collaborative relationships with supply chain partners and actively participating in digital innovation platforms.