Digital renaissance amidst crisis: impact of digitalisation on firm performance during the pandemic

This paper investigates how pre-pandemic investments in digital technologies influenced firm performance during the Covid-19 crisis and subsequent recovery, using comprehensive administrative data from Türkiye. We construct a novel firm-level digitalisation index based on firm-to-firm trade transactions, capturing a broad spectrum of digital investments including software, hardware, consultancy, and data services. Employing coarsened exact matching and a difference-in-differences framework, we find that more digitalised firms outperformed their less digitalised pairs during the pandemic and post-pandemic years. Specifically, digitalised firms exhibited 3% higher total assets, 4% higher net sales, and 2% higher employment, with even greater gains in profitability (0.44 percentage points), return on assets (0.42 percentage points), and export share (0.16 percentage points). To investigate plausible mechanisms consistent with these effects, we examine whether more digitalised firms expanded their trade networks, experienced lower worker turnover, and achieved higher productivity during the pandemic. We find that these firms added 3% more partners and traded over 2% greater distances with reduced labour churn, and higher productivity. These findings underscore the role of digitalisation in enhancing firm resilience and adaptability in the face of economic shocks.