Digital Transformation and Firm Total Factor Productivity: Tests on the moderating effect of ESG

Abstract

With the rapid development of digital economy, digital transformation has become the choice of enterprises in the rapid development of the economy, can it have a real impact on the productivity of enterprises? In this paper, based on the A-share data of listed companies in China from 2009 to 2022, we use "crawler" tools to extract the frequency of words related to digital transformation in the annual reports of the companies, and use them as indicators of digital transformation. We use the economic data of enterprises and calculate the TFP of enterprises based on the OP method. Two-way fixed effects are used to analyze the results. The results show that: first, digital transformation can effectively increase enterprise total factor productivity, and for every 1% increase in digital transformation indicators, TFP increases by 0.1096%, which still holds after considering endogeneity and passing the robustness test. Second, among the ESG indicators, environmental and corporate governance indicators inhibit the increase in firm total factor rate by digital transformation, possibly due to the lower returns to production as a result of higher costs. Third, the heterogeneity analysis finds that digital transformation brings differential improvements in TFP according to the geographic location of the firm and the firm's revenue, with the East being better than the Center, and high-revenue firms being better than low-revenue firms. The conclusion can provide empirical evidence for the economic benefits brought by digital transformation, and explores the direction of the influence of ESG performance in this process, providing a new perspective for enterprises to better carry out digital transformation.