The Shifting Influence of Digital Transformation on Breakthrough Innovation in China

The study investigates the relationship between digital transformation (Dt) and breakthrough innovation (Bi) in Chinese A-share listed companies. Specifically, the subject of the study is the influence of Dt on Bi, focusing on comparing its effects during normal periods and the global health crisis, with an emphasis on the differing impacts across state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). The purpose of the research is to explore how digitalization can enhance innovation under both stable conditions and during external disruptions, while examining the variations in its effects on different types of firms. The relevance lies in the increasing role of Dt in driving innovation in today’s rapidly evolving global landscape, especially in light of the challenges posed by the COVID-19 crisis. This study provides important insights into how firms can adapt their digital strategies to maintain or accelerate innovation during periods of disruption. The scientific novelty lies in the analysis of the heterogeneous impact of Dt on innovation across firm types and external contexts, particularly the comparison between normal and crisis periods. The authors used the methods of machine learning-based text-mining techniques to construct indicators for Dt and fixed-effects regression models to estimate its impact on Bi. As part of the study, the author used panel data from Chinese listed companies spanning from 2014 to 2024, applying these advanced methods to uncover the effects of Dt on Bi under different periods and firm conditions. Based on the results, it was found that Dt significantly boosts Bi under normal circumstances but that this positive relationship is disrupted during crisis periods, especially in SOEs. Non-SOEs showed no significant impact from Dt in either normal or crisis periods. The author concluded that while digital transformation is a key driver of innovation, its effectiveness is contingent upon firm type and the external context, with global disruptions potentially limiting its full potential, particularly for SOEs.

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