Digital Innovation in the Construction Industry: Overhyped or Truly Valuable?

Despite the promising potential of digital innovation, concerns about its practical effectiveness continue to hinder its widespread adoption in the construction industry. This study draws on the transaction cost theory to investigate whether digital innovation is a valuable investment that can improves productivity of construction firms. Using the panel data from 136 listed Chinese construction firms with 961 firm-year observations from 2011 to 2024, this study empirically analyzes the impact and mechanism of digital innovation on firm productivity. The results indicate that digital innovation is a valuable investment project that significantly enhances productivity. Moreover, mediation analysis reveals that this positive effect primarily operates through reducing internal governance costs, rather than external transaction costs. These findings provide practical insights for construction firms, demonstrating that digital innovation is a strategically valuable investment that can reduce transaction costs and enhance firm productivity, rather than merely being an overhyped trend.