How does digital technology innovation enhance firm value? A dual route model

Differs to digital innovation, which is application-oriented of digital technologies, digital technology innovation focuses on developing and creating new digital technologies (creation-oriented). Thus, digital technology innovation forms the foundation of digital innovation. Increasingly, firms, especially those in manufacturing, are recognizing the crucial role of digital technology innovation in shaping their intangible value. In order to determine whether digital technology innovation can enhance firm value and the specific mechanism involved, this study draws on patent data (the fields of digital technology are defined based on IPC) and annual report data of listed manufacturing firms in China to reveal the specific relationship between digital technology innovation and the enhancement of firm value. We find that that digital technology innovation can make a significant contribution to firm value; more important, the relationships between digital technology innovation and lowering costs, upgrading efficiency can be characterized as an inverted U-shaped pattern and a Ushaped pattern, respectively. These results hold after the several robustness checks. Additional analyses show that these relationships differ significantly across types of state ownership, firm size, and location feature. Finally, our mechanism analysis suggests that lowering costs and upgrading efficiency driven by digital technology innovation is a key component of the value-enhancing effect.