The Impact of Digital Transformation on Firm Profitability

Abstract

With the increasing convergence of the digital economy and the real economy, digital transformation has become a vital pathway for enterprises to achieve high-quality development. Against this backdrop, where digital technology's effect on firm profitability is key to understanding its real-economy impact, this article provides empirical data from a panel of Chinese A-share listed companies (2010–2023), systematically showing that digital transformation significantly increases return on assets (ROA). From a mechanistic perspective, digital transformation enhances profitability by lowering financing costs through increased information transparency and improved market signaling, while also boosting financial flexibility by improving access to financing and optimizing the debt maturity structure. The dual contributions of this study lie in furnishing novel empirical evidence for understanding digital technology's empowerment of real-economy firm performance and in generating micro-level policy implications that can inform the effective implementation of digital strategies and the advancement of high-quality economic growth.