How sudden public events shape firm digital transformation: evidence from Chinese listed firms

Purpose The outbreak of COVID-19 made a huge impact on firms and also had an important influence on their digital development strategies. Using difference-in-differences (DID) model, this study investigates the influence of COVID-19 shock on digital transformation (DT). Design/methodology/approach This study conducts a natural experiment based on COVID-19 shock and use machine learning methods to measure the level of digitalization of firms, and used DID model to explore the changes in the DT of firms before and after COVID-19 outbreak. Findings The empirical results show that the DT process of firms in the experimental group was significantly accelerated after the outbreak of COVID-19, suggesting that COVID-19 shock has catalyzed an acceleration in the DT processes within firms. In addition to assessing the direct impact of COVID-19 on DT, this study also explores the influence mechanisms through which COVID-19 shock influences firm DT. The influence mechanism test shows that COVID-19 shock has compelled firms to accelerate their DT by increasing operational costs and reducing the stability of customer relationships. On this basis, this study also systematically explored the role of optimal allocation of external resources in the process of COVID-19 shock affecting DT of firms. This study found that COVID-19 shock was more significant in enhancing firm DT in situations characterized by advanced digital finance development and advanced labor aggregation. Furthermore, heterogeneity analysis shows that COVID-19 shock promotes DT more significantly with a higher degree of industry competition, a higher share of secondary industries in the region and in more market-oriented regions. Originality/value This research provides new insights into dynamic process of DT catalyzed by the COVID-19, while also highlighting the critical role of external resources and market conditions in facilitating this transformation.