Technology integration of digital and real economy industries and firm investment efficiency: Evidence from China

Purpose Efficient investment is a strategic imperative for a firm's sustainable growth, as persistent inefficiencies lead to severe capital misallocation. Although the technology integration of digital and real economy industries (digital-real integration) holds significant potential to address such inefficiencies by structurally upgrading firms' information architectures, our understanding of the underlying micro-level mechanisms remains limited. Therefore, this study aims to uncover how substantive technological integration improves firm investment efficiency by mitigating information asymmetry and agency conflicts. Design/methodology/approach Using Chinese A-share listed firms from 2009 to 2023, an indicator based on patent citations is constructed to quantify the digital-real integration. Investment deviation models are applied to assess investment efficiency, and fixed effects models are employed as the baseline specification. Multiple endogeneity and robustness tests are conducted to validate the results. Findings The digital-real integration significantly increases investment efficiency, and this finding remains robust across alternative measurements. Mechanism analyses show that the improvement arises mainly from reduced financing constraints and enhanced internal control quality, both of which mitigate inefficient investment. Additional tests reveal heterogeneous effects: the enhancement is more salient for high-growth firms and for firms with moderately concentrated ownership. Originality/value This study bridges the macro-micro gap by explicitly linking digital-real integration to firm investment efficiency, offering a novel pathway to resolve the digitalization paradox and mitigate inefficient investment. It unpacks the value-creation black box via financing constraints and internal control mechanisms. Furthermore, identifying non-linear boundary conditions extends traditional linear frameworks in corporate finance. These insights practically guide policymakers and high-growth firms in optimizing data-driven resource allocation.