How and when does digital transformation promote technological innovation performance? A study of Chinese high-tech firms

Digital transformation and technological innovations are crucial responses of firms to external competitive dynamics; however, the complex relationship between them remains underexplored and contentious. Drawing on the dynamic capability view, we postulate that digital transformation influences technological innovations by alleviating internal information asymmetry and altering organizational resource distribution, thereby addressing routine and resource rigidities in the transformation process. To further explore the potential crowding-out effect of digital transformation on technological innovation, we designed a set of heterogeneity analyses based on contextual conditions surrounding resources accessible to firms. We examined these relationships using double fixed-effects and mediation models, based on a comprehensive panel dataset of 19 high-tech industries in China, spanning the years 2010–2021. Our results indicate that digital transformation promotes the quantity, quality, and efficiency of technological innovations, with a comparatively greater influence on the former two. These effects are mediated by internal information asymmetry and R&D intensity. Furthermore, the positive and significant effect of digital transformation is evident among firms located in the Eastern region of China and those that are profitable, but becomes negligible among loss-making firms. We conducted a series of robustness checks to validate the results and discussed their theoretical and practical implications. • The relationship between digital transformation and technological innovation is theoretically ambiguous and empirically inconclusive. • This study examines the relationship using a mediation model that addresses two types of organizational rigidities. • Digital transformation improves technological innovation outcomes by reducing internal information asymmetry and increasing R&D intensity. • The positive digital transformation-innovation link exists in Eastern Chinese and profitable firms, but is negligible in loss-making ones. • We test our hypotheses using a comprehensive dataset of 2609 underexamined Chinese high-tech firms and 18,148 observations.