Digital empowered business environment and enterprise innovation: Evidence from China

Abstract

This research examines how digital development affects corporate innovation in Chinese listed firms from 2010 to 2023, focusing on marketization, rule of law, and internationalization, under the theoretical framework of institutional theory. Using Poisson, fixed-effects, and difference-in-differences models, the study confirms that a digitally empowered business environment can enhance enterprise innovation. However, heterogeneity analysis reveals a “double-edged sword” effect, where this environment may hinder innovation in super cities and technologically advanced regions, highlighting the “digital paradox”. The study offers recommendations for developing countries to improve their business environments and foster innovation through digital governance.