Digital Transformation and Firm Innovation for R&D Investment Efficiency
JI Yunyang, ZHOU Xin ZHANG Qian
School of Economics & Trade, Hunan University; School of Economics, Dongbei University of Finance & Economics; School of Economics and Trade, Hunan University of Technology and Business
Summary:
As a driving force of high-quality development, innovation must run throughout the Chinese-style modernization process. With the simultaneous arrival of the digital economy era, innovation is becoming a new driving force for global economic growth. The 14th Five-Year Plan for the Development of Digital Economy released in January 2022 clearly states that the added value from core industries in the digital economy will increase to 10% of the gross domestic product by 2025. As the main carrier of the integrated development of digital and real economies, the effect of enterprises' digital transformation has attracted much attention. In this context, the practical question is whether digital transformation can improve enterprises' technological innovation ability and thus become an important engine for their high-quality development. This paper explores the mechanism of action and whether the innovation effect of digital transformation differs among enterprises. The findings will help us to obtain a deep understanding of how digital transformation can boost high-quality economic development and provide important references for accelerating the construction of a modern industrial system. By constructing a theoretical model for how digital transformation affects innovative enterprise decision-making practices, this paper elaborates on the internal influencing mechanism between these two factors. Based on listed companies' digital transformation data from 2010 to 2020 and the perspective of research and development (R&D) investment and efficiency, this paper conducts an in-depth analysis of the impact and heterogeneity of enterprises' digital transformation on their technological innovation. This paper's innovative points can be summarized into three aspects. First, digitalization's inherent characteristics are combined to build a more general framework for theoretical analyses. This paper focuses on enterprises' production, operation, and innovation choices, and establishes a general equilibrium model to demonstrate the active mechanisms of profit guarantees, cost control, and the spillover and scale effects on enterprises' innovative decisions systematically. Hence, this paper expands the research scope of the economic effect of digital transformation and the influencing factors of enterprise innovation. Second, based on the dual perspectives of R&D investment and efficiency, this paper uses model reasoning and empirical testing to investigate the impact of digital transformation on enterprise innovation and its heterogeneity systematically. This paper explores the enhancement effect of R&D efficiency caused by the scale and spillover effects during digital transformation and empirically provides an in-depth understanding of the innovation effect of enterprises' digital transformation. Third, in terms of policies, this paper scientifically verifies the innovative effect of digital transformation, which has important implications for how to promote enterprises' high-quality development and realize the national innovation-driven development strategy and Chinese-style modernization in the digital economy era. In addition, the results also provide empirical support for the formulation and implementation of relevant policies. This paper makes three contributions to the research literature. First, digital transformation has significantly promoted enterprises' innovation output. Second, the improvement of R&D input and efficiency is the key mechanism for digital transformation to promote enterprises' technological innovation. The improvement of R&D inputs benefits from the profit guarantee and cost control mechanisms during digital transformation, while R&D efficiency comes from the impact of the scale and spillover effects. Third, digital transformation has a more obvious promoting effect for larger-scale enterprises with fewer specific assets in addition to enterprises in areas with better property rights protection. These conclusions indicate that digital transformation can become an important driving force for improving Chinese enterprises' innovation capability under the new development plan. This paper's policy recommendations are as follows. First, the Chinese government should speed up the construction of new digital infrastructure, vigorously promote the intelligent upgrading of physical infrastructure, and lay the foundation for enterprises' digital transformation. Second, we should continue to optimize the market environment so that it is suitable for digital economic development, improve the digital industry ecology, and coordinate the promotion of digital industrialization and industrial digitalization. Finally, enterprises should speed up their construction of technical, organizational, and operational support for digital transformation. By improving their value and innovation performance, these enterprises should give full play to the promoting role of digital transformation in corporate governance and technological innovation. In addition, they should further promote the cost reduction, quality improvement, and efficiency improvement of digitally empowered enterprises.
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