Geographic distance, digital transformation, and firm innovation: evidence from Chinese listed firms

Does digital transformation reshape the innovation returns to geographic distance? Using data from Chinese A-share listed firms and a text-based measure of digital transformation over 2012–2022, we find that distance from industry innovation leaders is negatively associated with both the quantity and quality of firm innovation, with technological dependence and local competition serving as key transmission channels. Rather than simply eliminating physical geography, digital transformation asymmetrically reshapes the downstream transmission channels: it may facilitate autonomous learning, mitigating the constraint of technological dependence on innovation quality; it may also broaden firms’ exposure to virtual competitive networks, consistent with stronger innovation incentives for both innovation quantity and quality. Overall, the findings suggest that digital transformation can relax, but does not eliminate, the innovation constraints associated with geographic distance.