Digital Transformation and Over-Investment: Exploring the Role of Rational Decision-Making and Resource Surplus in the Knowledge Economy

Haomiao Zhai (), Fan Yang (), Fuxia Gao (), Stavros Sindakis () and Gazal Showkat ()
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Haomiao Zhai: Sichuan International Studies University
Fan Yang: Sichuan International Studies University
Fuxia Gao: Sichuan International Studies University
Stavros Sindakis: Hellenic Open University
Gazal Showkat: Institute of Strategy, Entrepreneurship and Education for Growth

Journal of the Knowledge Economy, 2024, vol. 15, issue 3, No 149, 14103-14134

Abstract: Abstract This paper examines the impact of digital transformation on over-investment behavior among Chinese A-share listed companies in Shanghai and Shenzhen from 2016 to 2020. The study reveals that enterprise digital transformation effectively inhibits over-investment. Compared to firms without digital transformation, those undergoing or possessing a higher degree of digital transformation exhibit lower probabilities and degrees of over-investment. Moreover, digital transformation has a stronger inhibitory effect on enterprises characterized by high levels of over-investment. These findings hold true even after accounting for factors of robustness and endogeneity. Heterogeneous group testing further demonstrates that the impact of digital transformation on over-investment is particularly prominent in non-state-owned, manufacturing, and high-tech enterprises. The study identifies “rational decision-making” as a mechanism through which digital transformation influences over-investment, and it finds that good corporate governance partially mediates this relationship. The research provides empirical evidence of the governance effect of digital transformation on investment decisions and expands our understanding of the economic consequences of digital transformation. The findings offer valuable insights for market investors and enterprise management as a meaningful reference in decision-making processes.

Keywords: Enterprise digital transformation; Over-investment; Rational decision-making; Corporate governance (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01569-2

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