When the customers comes to you: mobile apps and corporate investment efficiency

Abstract Firms are increasingly shifting towards digital channels, yet the implications of this shift remain underexplored. Using a unique database of customer behaviors extracted from the top 2000 mobile apps developed by companies in China, this study investigates the impact of mobile apps on inefficient corporate investments. The results indicate that metrics such as active user count, usage duration, and app launch frequency can mitigate inefficient investments, notably by curtailing overinvestment. These findings survive a series of robustness checks such as altering the measures of inefficient investment, extending the analysis to include the top five apps, incorporating H-share listed firms, and employing instrumental variables regression. Moreover, the mechanism analysis indicates that mobile apps help reduce inefficient investments by lowering agency costs and relaxing financial constraints. Further analysis examines the business models of these apps (paid vs. free) as well as their reputation mechanisms, revealing that the pricing strategies of apps and the reputation of corporate brands also play a role in how the adoption of mobile apps affects inefficient investment.