Economic policy uncertainty and corporate digital transformation: evidence from China

Digital transformation refers to the process of utilizing digital technology to develop new or enhance current business processes, organizational culture, and customer experiences to satisfy changing business and market requirements. Taking all non-financial Chinese A-share firms from 2010 to 2018 as the research sample, we investigate the impact of Economic Policy Uncertainty (EPU) on corporate digital transformation. Evidence shows that EPU has a significantly positive impact on corporate digital transformation. This result still holds after a series of robustness tests, such as employing alternative measures of key variables, controlling for various fixed effects, including possibly omitted variables and adopting estimation of instrumental variables in the 2SLS approach. In addition, market competition provides the primary channel through which EPU influences corporate digital transformation. Finally, the above EPU effect is more pronounced in firms with small size, non-SOEs, and firms with weak corporate governance. Overall, our results provide a novel explanation for the behaviour of corporate digital transformation in the emerging capital markets.