Firm Digital Transformation and Investment Efficiency: Evidence From China

In the digital economy, how to capitalize on digital transformation to improve the efficiency of long‐term capital allocation is an important issue facing the current high‐quality growth of China’s economy. Utilizing data from 26,008 A‐share listed companies on the Shanghai and Shenzhen stock exchanges from 2008 to 2021, this study explores the mechanisms between digital transformation and firm investment efficiency from the perspective of capital constraints and the moderating effects of financing channel heterogeneity on the above relationship. The results demonstrate the following: (1) Digital transformation has significantly reduced overinvestment and increased firm investment efficiency, while it has also significantly increased firms’ underinvestment. (2) The internal mechanism test demonstrates that digital transformation has increased firms’ financial constraints by increasing their period expense ratio and decreasing short‐term performance, thus reducing their overinvestment and increasing underinvestment. (3) In the heterogeneity analysis of financing channels, the findings demonstrate that the impact of digital transformation on investment efficiency is mitigated in state‐owned enterprises, enterprises that have a close relationship with a bank, and group enterprises.