Digital transformation and total factor productivity: Empirical evidence from China

Digital transformation plays a crucial role in improving the quality development of companies in this era of digital economy with ever-changing technologies. This paper empirically investigates the impact of corporate digital transformation on total factor productivity and the mechanism of action, using A-share listed companies in Shanghai and Shenzhen from 2011-2021 as the research sample, and found that the digital transformation of companies significantly improves total factor productivity, with the plausibility of the findings being verified by a series of robustness tests. Based on the heterogeneity study, it is found that such effect is stronger for private companies, non-high-tech companies, and companies with a high degree of industry competition. The mechanism test indicates that digital transformation facilitates total factor productivity through four ways: strengthening company technological innovation, reducing operational costs, increasing resource allocation efficiency, and improving human capital structure. The findings of this paper support a better understanding of the micro effects of digital transformation and provide empirical evidence for policy formulation and adjustment.