How does digitalization affect capacity utilization in the energy sector? Evidence from China

Digitalization provides a distinctive chance to expedite capacity utilization empowered by the widespread use of information and communication technologies (ICT), which enable efficient resource allocations and enhance technological innovations. This study empirically estimates the effects of digitalization on capacity utilization, focusing on China's energy sector plagued by persistent over-capacity. Utilizing data from listed energy companies between 2011 and 2019, the findings reveal a positive relationship between digitalization and the capacity utilization of these energy companies. This result is significantly robust across a series of robustness checks. The heterogeneity analysis indicates that the effect of digitalization on capacity utilization is heterogeneous across the degrees of market competition, economic policy uncertainty, companies' factor intensity, regions, and companies' ownership. The mechanism test demonstrates that digitalization felicitates capacity utilization by reducing resource misallocation (particularly in terms of labor) and promoting innovation within energy companies. In addition, human capital quality, digital development environment, and market vitality positively moderate this relationship. On the basis of these findings, this paper puts forward policy recommendations to effectively deal with over-capacity problems through digitalization. • Explore how digitalization affects energy companies' capacity utilization and the mechanisms behind it. • Identify a positive relationship between digitalization and energy companies' capacity utilization. • Show that digitalization increases capacity utilization by reducing resource misallocation and promoting innovation. • Demonstrate that digitalization's impact on capacity utilization varies by market competition, policy uncertainty, and more.