Impact and mechanism of digital transformation on performance in manufacturing firms

The digital transformation of firms significantly contributes to the advancement of a digital China, fostering both economic efficiency and high-quality enterprise development. Using annual report data from Chinese manufacturing companies (2011–2019), this study employs text mining to develop indicators that gauge the extent of a firm’s digital transformation. It delves into the effects of digital transformation on firm performance, examines the mechanisms at play, and evaluates variances based on firm ownership, size, and location. Findings suggest that digital transformation bolsters firm performance via three avenues: sales enhancement, production cost reduction, and distinct innovation. Notably, non-state-owned and larger firms derive greater economic benefits from digital transitions. Furthermore, geographical disparities exist in the influence of digital transformation on performance. Specifically, companies in the central region benefit most, followed by those in the east, whereas the western region shows no significant impact.