Can Digital Transformation be a Driver of R&D Intensity? Evidence from China

Abstract

Abstract: Research Question: Does digital transformation (DT) enhance firms' R&D intensity (RDI)? If so, which subdimensions of DT drive this effect? Does the DT-RDI relationship exhibit heterogeneity based on ownership, profitability, technological orientation, and geographic location? Motivation: While prior research has explored the broader economic impacts of DT, there is a gap in understanding which DT subdimensions drive RDI and how firm characteristics (e.g., ownership, profitability, technological orientation, and geographic location) shape this relationship. Idea: This study investigates whether DT is a driving factor of RDI through the lenses of resource-based theory, agency theory, and innovation diffusion theory. Data: The sample consists of 3,920 Chinese publicly listed firms from 2012 to 2021, with DT data sourced from annual report text analysis. Method/Tools: A series of panel analyses, including grouped t-tests and two-way fixed effects, were conducted. Robust standard errors clustered at the firm level were applied to address heterogeneity and cross-sectional dependence. Endogeneity tests using PSM, DID, and GMM estimations confirm the robustness of the findings. Findings: This study finds a positive relationship between DT and RDI, with key drivers being subdimensions such as artificial intelligence, cloud computing, and big data. The positive effect is stronger in state-owned, profitable, high-tech firms, and those located in eastern and central China. Contributions: First, this research expands the limited literature on how DT influences R&D strategies, focusing on R&D decision-making rather than just operational outcomes. Second, it unveils the role of DT's subdimensions in shaping R&D, offering insights into the strategic implications of the digital era. Third, by highlighting the heterogeneous effects of DT on RDI, the study provides actionable recommendations for enhancing firms’ R&D competitiveness through tailored digital strategies.