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Digital Transformation and Over-Investment: Exploring the Role of Rational Decision-Making and Resource Surplus in the Knowledge Economy

Author

Listed:
  • Haomiao Zhai

    (Sichuan International Studies University)

  • Fan Yang

    (Sichuan International Studies University)

  • Fuxia Gao

    (Sichuan International Studies University)

  • Stavros Sindakis

    (Hellenic Open University)

  • Gazal Showkat

    (Institute of Strategy, Entrepreneurship and Education for Growth)

Abstract

This paper examines the impact of digital transformation on over-investment behavior among Chinese A-share listed companies in Shanghai and Shenzhen from 2016 to 2020. The study reveals that enterprise digital transformation effectively inhibits over-investment. Compared to firms without digital transformation, those undergoing or possessing a higher degree of digital transformation exhibit lower probabilities and degrees of over-investment. Moreover, digital transformation has a stronger inhibitory effect on enterprises characterized by high levels of over-investment. These findings hold true even after accounting for factors of robustness and endogeneity. Heterogeneous group testing further demonstrates that the impact of digital transformation on over-investment is particularly prominent in non-state-owned, manufacturing, and high-tech enterprises. The study identifies “rational decision-making” as a mechanism through which digital transformation influences over-investment, and it finds that good corporate governance partially mediates this relationship. The research provides empirical evidence of the governance effect of digital transformation on investment decisions and expands our understanding of the economic consequences of digital transformation. The findings offer valuable insights for market investors and enterprise management as a meaningful reference in decision-making processes.

Suggested Citation

  • Haomiao Zhai & Fan Yang & Fuxia Gao & Stavros Sindakis & Gazal Showkat, 2024. "Digital Transformation and Over-Investment: Exploring the Role of Rational Decision-Making and Resource Surplus in the Knowledge Economy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14103-14134, September.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:3:d:10.1007_s13132-023-01569-2
    DOI: 10.1007/s13132-023-01569-2
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