Agglomeration of the Digital Services Industry and Digital Transformation: Evidence from China

Abstract

This study examines the relationship between the agglomeration of the digital service industry (ADS) and listed companies’ digital transformation in China. We analyze panel data from 282 prefecture-level cities and listed companies for 2010–2019. The results reveal that ADS has an indirect positive effect on listed companies’ digital transformation by improving firms’ innovation inputs and decreasing their operating costs. These findings hold after using instrumental variables to solve the endogeneity problem and conducting robustness tests. Digital services is the only producer service industry whose agglomeration influences listed companies’ digital transformation. The impact of ADS on digital transformation is strongest in manufacturing, non-state-owned, and small and medium-sized enterprises.