Digital transformation and corporate innovation: A factor input perspective

Abstract

Abstract This research examines the effect of companies' digital transformation on innovation by integrating factors of capital, labor, and technology into the framework, aiming to understand how the enterprises can leverage digital technology to improve absorptive capacity in the innovation process. We use archival data of digital transformation extracted from the annual reports by the methods of text mining and statistical word frequency to conduct large‐sample empirical research of Chinese listed companies. Drawing upon the sample of A‐share listed companies between 2007 and 2019, this article finds that digital transformation can improve both radical and incremental innovation. Further results reveal that the digital transformation has a more significant impact on innovation for companies in the labor‐intensive and technology‐intensive industries, which have more opportunities to utilize digital technology to improve absorptive capacity, and for the companies during the recession period, which lack absorptive capacity and thus can utilize the digital technology to improve absorptive capacity more significantly. Meanwhile, the results reveal that the impact of digital transformation in the industries driven by different factors on radical innovation and incremental innovation is heterogeneous.