Digitalization, Managerial Preference, and Corporate Innovation in Transition Economies: Long-Term Evidence From Chinese 4,001 Listed Companies

Huibo Zhong, Zechen Zheng, Mingwei Chu and Xing Gao

SAGE Open, 2025, vol. 15, issue 3, 21582440251360505

Abstract: Amid the ongoing technological revolution, digitalization has been expected to drive radical innovation. However, existing literature fails to distinguish the differential effects of digitalization on exploratory versus exploitative innovation, overlooking a crucial aspect of its practical evaluation. This study aims to fill this gap by examining the distinct impact of digitalization on these two types of innovation within transitional economies, using China as a case study. We propose a theoretical framework in which managerial preferences act as a mediating mechanism, suggesting that digitalization creates a biased incentive structure that favors exploitative innovation, leading to a phenomenon we term exploratory innovation crowd-out (EIC). To test the causal relationship and underlying mechanisms, we analyze data from 4,001 publicly listed Chinese companies over the period from 2011 to 2021. The results indicate that digitalization significantly drives EIC by fostering managerial preferences for imitation and iteration rather than radical innovation. Furthermore, this influence is more pronounced in industries characterized by higher competition and regions with a greater degree of marketization. This study systematically assesses the phenomenon of EIC in the context of digitalization, providing both theoretical insights and practical guidance for enterprises and policymakers. Our findings suggest that, in the digital era, institutional factors—such as industry entry barriers imposed by administrative orders and the phased approach to market opening in transitional economies—can mitigate EIC, thus promoting the sustainable development of industries and regions. JEL Classification: O1, O3, P3.

Keywords: digitalization; corporate innovation; managerial preference; exploratory innovation crowd-out; transition economies (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:15:y:2025:i:3:p:21582440251360505

DOI: 10.1177/21582440251360505

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