Abstract

     This paper empirically examines the effect of inefficient corporate investment on digital transformation, using Chinese listed companies from 2007 to 2019 as a sample, and finds that inefficient investment is not conducive to improving digitalization. We find that the greater the financing pressure on a company, the worse the digital transformation, and financing constraints exacerbate this negative effect. Among state-owned, private and highly digitalized companies, the negative impact of inefficient investment on digital transformation intensifies as the pressure of financing constraints increase. To combat inefficient investment, enterprises should optimize their investment structure, reduce their financing constraints, and improve their risk prevention mechanisms.

Introduction

     The global economy and society are in a critical stage of digital transformation, and the supporting and leading role of the digital economy for industrial development is becoming increasingly important (Wen and Zhong, 2020). As we enter a “new normal” period, where growth rates gradually decrease, the development of the digital economy becomes an important tool for China on its journey to being a high quality, innovative country. With the in-depth implementation of China’s manufacturing sector, network infrastructure and big data strategy, the development of the digital economy has gained momentum, with the overall scale expanding from 18.6 trillion yuan in 2015 to 39.2 trillion yuan in 2022, and the proportion of GDP attributed to the digital economy increasing from 27% to 38.6%, thereby becoming a key driver of stable economic growth. However, these impressive achievements have also raised some concerns. Corporate digital transformation requires investment and high technical standards, leaving some who refuse to transform, as well as those who are ready (Liu et al., 2021). Therefore, understanding the potential value of digital transformation is an issue of great concern to both academia research and policy makers.

Conclusions and recommendations

     This paper takes Chinese listed companies from 2007 to 2019 as a research sample, and empirically tests the impact of investment efficiency on corporate digital development, and the mediating effect of financing constraints, and the conclusions obtained are as follows:

۱ The results show that inefficient investment is detrimental to digitalization; there is a positive relationship between investment efficiency and digitalization, and the higher the financing pressure on a company, the more unfavorable the digital transformation, and financing constraints exacerbates this negative effect.

۲ The financing constraint has a more significantly negative moderating effect on the relationship between inefficient investment and digitization levels for state-owned firms, private firms, and firms with higher digitization levels.

۳ Companies can alleviate financing pressure to a certain extent through inefficient investment, but it is still fundamentally detrimental to their digital transformation.