Digital transformation and corporate diversification

Jin Roc Lv, Chenghui Ye and Chen Yang

Pacific-Basin Finance Journal, 2025, vol. 93, issue C

Abstract: We find that a one-standard-deviation increase in digital transformation is associated with a 0.0579-standard-deviation increase in corporate diversification. This finding is robust to alternative measures of digital transformation and corporate diversification, sample constructions, and the control for potential endogeneity issues. In additional analyses, we first show that the effect of digital transformation on corporate diversification is more pronounced in regions with less developed external markets, in industries with a lower level of competition, and in firms with greater R&D intensity; second, digital transformation affects corporate diversification through the reductions in cost stickiness and advertising expenses; third, digital transformation has a stronger effect on related than unrelated diversification; fourth, digital transformation alters the effect of diversification on firm value. Taken together, these results are largely consistent with the resource view in the literature on corporate diversification, which states that firms diversify when excess resources are available.

Keywords: Digital transformation; Corporate diversification; Resource view; Related and unrelated diversification; Market valuation (search for similar items in EconPapers)
JEL-codes: G32 L22 L25 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x2500232x

DOI: 10.1016/j.pacfin.2025.102895

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