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How does business environment affect firm digital transformation: A fsQCA study based on Chinese manufacturing firms

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  • Chen, Xuanyu
  • Yang, Na

Abstract

Digital transformation can improve firms' competitive advantages and contribute to regional economic development. The question of how to enhance the business environment to facilitate and encourage firm digital transformation emerges as a crucial area of inquiry. To explore the relationship between city-level business environment and firm digital transformation, we conducted configuration analysis based on a sample of 3088 manufacturing firms across 240 Chinese cities in year 2022. Based on results, we identified three distinct business environments, consisting of both detrimental and favorable factors, that can promote firm digital transformation. Thereinto, limited public resources, a shortage of human resources, and an underdeveloped market environment work that prompt firms' motivation of digital transformation, since the negative consequences stemming from those limitations can be mitigated by digital transformation. Meanwhile, a conducive innovation environment, significant financial development, a favorable legal environment, and a supportive political environment serve as advantageous factors that amplify firms' willingness to embrace digital transformation, since they mitigate costs and risks associated with digital transformation. Our study expands the theoretical boundaries of digital transformation, and provides valuable insights for government to optimize business environments to support firms’ digital transformation.

Suggested Citation

  • Chen, Xuanyu & Yang, Na, 2024. "How does business environment affect firm digital transformation: A fsQCA study based on Chinese manufacturing firms," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1114-1124.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:1114-1124
    DOI: 10.1016/j.iref.2024.03.071
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