Is it strategy or technology that drives value? Exploring the impact of digital transformation on manufacturing firms

This study examines the impact of digital transformation on the market value of manufacturing firms in China, emphasizing the mechanisms driving performance improvement. Using Dynamic Capabilities Theory (DCT), we propose that digital transformation enhances market value through the upgrading of human capital, technological innovation, and operational efficiency. Based on data from 23,440 firm-year observations between 2012 and 2024, our analysis shows that digital transformation positively affects market value, measured by Tobin's Q. We also find that human capital, technological innovation, and operational efficiency mediate this relationship. Furthermore, external factors such as ESG performance and industry competition moderate the effects of digital transformation. Strong ESG ratings amplify its benefits, while greater industry concentration enhances the impact. State-owned and larger firms benefit more due to institutional advantages and resource availability. Additionally, firms with analytical strategies achieve the highest returns, highlighting the role of strategic orientation in digital transformation. These findings offer theoretical insights and practical guidance for managers seeking to use digital transformation for long-term value creation.