The digitalization paradox: entry timing and firm performance

While digital transformation has attracted widespread attention, consensus on its firm performance impact remains elusive, reflecting a persistent ‘Digitalization Paradox’. This study examines how entry timing serves as a critical boundary condition shaping these divergent outcomes. Using a sample of Chinese A-share listed firms from 2009 to 2019, we measure digital transformation via TF-IDF text mining of annual reports and classify early adopters versus followers through a novel industry-specific ‘Peak Year’ strategy grounded in Diffusion of Innovations Theory. Our firm fixed-effects estimates, reinforced by instrumental variable analysis, reveal that digital transformation significantly reduces the financial performance (ROA/ROE) of early adopters: legacy inertia and organisational rigidity outweigh initial market signalling benefits, while followers experience no significant performance decline, consistent with technological leapfrogging within a mature ecosystem. Mechanism analyses further show a fundamental tension: early adopters gain consumer recognition and reduce selling expenses, but these revenue-side advantages are overwhelmed by sharply higher administrative costs stemming from organisational friction between legacy and new digital structures. These findings clarify the micro-mechanisms of the Digitalization Paradox and underscore entry timing as a pivotal strategic contingency for realising value from digital transformation.