Unleashing global potential: The impact of digital technology innovation on corporate international diversification

Abstract

This study investigates the role of digital technology in driving the international diversification of firms within the context of China's unique market conditions. The limited marketization and institutional imperfections common in developing countries often compel local enterprises to seek expansion abroad. Using a sample of Chinese listed companies from 2005 to 2021, we find a positive correlation between digital technology innovation and international diversification. Mechanism tests indicate that digital technology facilitates this expansion by promoting corporate digital transformation, improving information transparency, increasing operational efficiency, and mitigating financing constraints. Furthermore, this positive impact is particularly pronounced in non-state-owned enterprises and traditional industries. These findings underscore the pivotal role of digital technology in aiding firms from developing markets to engage more effectively in global commerce and offer vital policy insights. Governments in other developing countries might consider similar strategies to foster digital innovation and promote global economic integration, leveraging the insights from China's experience as a blueprint for broader application.