The Enabling Effects of Digital Governance: Digital Government and Firm Capacity Utilization

ABSTRACT Digital government constitutes a central pillar of the Digital China strategy and plays a critical role in promoting high‐quality firm development. Using panel data from listed manufacturing firms during 2010–2023, this study empirically examines the impact of digital government development on firms' capacity utilization and investigates the underlying mechanisms through which this effect operates. The results show the following. First, digital government development significantly enhances firms' capacity utilization, and this finding remains robust across a wide range of robustness checks. Although the continuous text‐based index captures variation in local government attention to digital governance, the national e‐government pilot DID provides complementary quasi‐experimental evidence that alleviates endogeneity concerns. Second, mechanism‐related analyses suggest that digital government development is associated with higher levels of corporate innovation, improved investment efficiency, and better supply–demand matching, which are consistent with the proposed channels through which digital government may enhance capacity utilization. Third, the positive effects are more pronounced for non‐state‐owned enterprises, firms operating in capital‐ and technology‐intensive industries, and firms located in regions with higher levels of government intervention. Further analysis indicates that digital government development enhances firms' total factor productivity and improves their ESG performance. In the context of the rapid advancement of digital government development, this study provides important policy implications for improving firms' capacity utilization.