When digital transformation meets service innovation: unlocking the mechanisms and consequences of peer effects

Purpose The service sector, traditionally seen as less technology-intensive, is now actively pursuing digital transformation. However, the role of peer effects in this process and their impact on financial and innovative performance remain unclear. This study aims to investigate the existence and mechanisms of peer effects in the digital transformation of service firms and their consequences for financial and innovative outcomes. Design/methodology/approach Using empirical data from listed Chinese service enterprises, this study employs ordinary least squares regression to examine industry and geographic peer effects in digital transformation. Text analysis is used to measure the extent of digital transformation. Findings Results reveal a significant industry peer effect in digital transformation, primarily driven by rivalry-based imitation. This effect enhances short-term and long-term financial performance but diminishes exploratory innovation. In contrast, geographic peer effects are not significant. These findings highlight the critical role of competition in shaping digital transformation strategies within the service sector. Originality/value This study advances the literature on peer effects, digital transformation and service innovation by exploring the mechanisms of peer effects in less technology-intensive service sectors and identifying their impact on financial and innovative performance. The findings provide valuable insights for practitioners and scholars seeking to manage peer influence for short-term and long-term performance while addressing challenges to exploratory innovation in the service sector.