The Impact of Digital Economy on Firm Performance: Evidence from China

Zhilin Wu, Haiming Long, Lei Shi and Hui Song

Emerging Markets Finance and Trade, 2024, vol. 60, issue 7, 1407-1431

Abstract: This paper employs a multidimensional fixed effects model and examines the impact of the digital economy on the performance of firms in traditional industries. We have identified a pattern similar to the “IT productivity paradox” observed in the United States during the 1980s. Using data from A-share listed Chinese firms from 2011–2019, we find that the digital economy significantly reduces the short-term performance of firms by intensifying market competition and increasing adjustment costs. On the contrary, the digital economy improves firms’ long-term performance through accumulation of human capital and greater innovation capability. Competitive strategies strengthen the effect of the digital economy on the long-term performance of firms. Additionally, our research demonstrates that technology-intensive firms and small firms experience more pronounced negative effects in the short term but firms with high-tech titles suffer smaller shocks than other technology-intensive firms. These findings presents novel perspectives on the influence of the digital economy on firm performance, offering valuable insights for managers, investors, and policymakers involved in economic decision-making.

Date: 2024
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DOI: 10.1080/1540496X.2023.2284298

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