Digital investments and corporate innovation: Quality improvement or efficiency enhancement?

This study explores the effect and mechanism of digital investments (DI) on corporate innovation (CI) from the perspective of quality improvement and efficiency enhancement. We find that: (1) DI can significantly improve CI. (2) There are notable industry-specific variations in the mechanisms of DI enhancing CI. Specifically, by enabling firms to improve innovation quality, DI can improve CI in the Information and Communication Technology (ICT) industries. However, through upgrading production efficiency, DI have a significant role in promoting CI in non-ICT industries. (3) The promotional effect of DI is greater in state-owned enterprises, at firms with larger scale, in areas with strong marketization. We contribute to the existing literature by examining how industrial heterogeneity shapes the pathways and mechanisms through which DI drive CI.