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Booster or trapper? Corporate digital transformation and capital allocation efficiency

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  • Fu, Yumei
  • Guo, Chun

Abstract

This study examines the effects of digital transformation on firm-level capital allocation efficiency by focusing on Chinese listed firms from 2007 to 2022. Using the investment-Q framework, we provide evidence that digital transformation enhances investment sensitivity to Q, suggesting that digital transformation improves firms’ capital investment efficiency. Further research shows that digital transformation enhances capital allocation efficiency by alleviating information asymmetry, reducing agency costs, and easing financial constraints. Cross-sectional surveys reveal that the positive effect of digital transformation on capital investment efficiency is more pronounced for firms with more corporate diversification, in high-technology industry, those with more subsidiaries, and those facing higher industry competition and economic policy uncertainty. Overall, from the perspective of capital allocation efficiency, digital transformation is the booster rather than the trapper for firms in developing markets. This study enriches the literature on investment efficiency and has significant implications for firms’ digital transformation.

Suggested Citation

  • Fu, Yumei & Guo, Chun, 2025. "Booster or trapper? Corporate digital transformation and capital allocation efficiency," Research in International Business and Finance, Elsevier, vol. 73(PB).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pb:s0275531924004434
    DOI: 10.1016/j.ribaf.2024.102650
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    More about this item

    Keywords

    Digital transformation; Capital allocation efficiency; Information asymmetry; Agency costs; Financing constraints;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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