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How do firms’ performance shortfalls affect digital transformation? The role of peer experience and persistent underperformance

Author

Listed:
  • Guocai Chen

    (South China University of Technology)

  • Tongying Liang

    (South China University of Technology)

  • Xiude Chen

    (Guangdong University of Technology
    Guangdong University of Technology
    Guangdong University of Technology)

Abstract

Drawing on the behavioral theory of the firm (BTOF) and organizational learning theory, this study investigates the impact of performance shortfalls on digital transformation under the background of the flourishing of the digital economy. Using a dataset of Chinese listed firms from 2009 to 2021, our results show that firms’ financial performance shortfalls drive digital transformation. From the perspective of vicarious learning, the successful experience of peers in a similar difficulty (underperformance) and the successful experience of peers in an advantageous condition (outperformance) strengthens the positive impact of focal firms’ underperformance on digital transformation. Finally, these positive moderating effects are more pronounced in focal firms with persistent underperformance. This study contributes to the trigger and how of firms’ digital transformation and extends BTOF by demonstrating the positive relationship between performance shortfalls and digital transformation alongside emphasizing the importance of various peer experience and their interactions with persistent underperformance to identify their boundary.

Suggested Citation

  • Guocai Chen & Tongying Liang & Xiude Chen, 2025. "How do firms’ performance shortfalls affect digital transformation? The role of peer experience and persistent underperformance," Review of Managerial Science, Springer, vol. 19(3), pages 757-795, March.
    • Handle: RePEc:spr:rvmgts:v:19:y:2025:i:3:d:10.1007_s11846-024-00774-w
    DOI: 10.1007/s11846-024-00774-w
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    More about this item

    Keywords

    Digital transformation; Performance shortfalls; Vicarious learning; Persistent underperformance; Peer experience;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other

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