Is corporate digital transformation counter-cyclical?

In this paper, we assess listed companies in China to empirically examine the relationship between economic cycles and corporate digital transformation. We find that enterprises undergo a higher level of digital transformation during business contraction, and digital transformation exerts a counter-cyclical effect, which is significantly stronger in non-state-owned enterprises and enterprises with a high proportion of low-skilled labor and a high growth level, but significantly weaker in enterprises in financial distress. Digital transformation during periods of contraction can enhance financing accessibility, optimize labor structures and improve corporate governance over the subsequent one to three years. This can alleviate the pressure of economic contraction. Our study contributes to the literature on economic cycles and digital transformation and provides insights enabling governments and enterprises to better understand macroeconomic trends, advance digital transformation and promote high-quality economic development.