Heliyon 9 (2023) e13916

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Heliyon
journal homepage: www.cell.com/heliyon

Research article

The impact of digital transformation on innovation performance -

The mediating role of innovation factors
Pengyu Chen, SangKyum Kim *
Department of Economics, College of Business and Economics, Dankook University, South Korea

A R T I C L E I N F O A B S T R A C T

Keywords: Existing digital transformation research has focused on economic and environmental perfor­
Digital transformation mance, which few studies directly explored the relationship between digital transformation and
Innovation performance innovation. Based on the innovation factor perspective, we explored the relationship between
Innovation factors
digital transformation and innovation by using firm data between 2009 and 2019. The findings
Mechanism analysis
are as follows: (1) The corporate digital transformation was measured through based on textual
analysis methods and it was found that digital transformation can promote corporate innovation.
(2) Knowledge flow, technical personnel, R&D investment, and innovation awareness are
important mediating paths. (3) In the innovation quantity dimension, the mediating role of
innovation awareness is greater. And in the innovation quality dimension, the mediating role of
technicians is greater. (4) Digital transformation has a greater impact on innovation of non-SOEs,
non-high-tech enterprises and non-heavily polluting enterprises, alleviating the gap between
different types of firms. The results of this paper alleviate the concerns of digital transformation in
developing countries such as China and provide experiences and evidence for them to promote
Industry 4.0 and sustainable innovation.

1. Introduction

Since the beginning of 21st century, the application of digital, networked and intelligent technologies has given rise to the fourth
industrial revolution-Industry 4.0 [1]. Industry 4.0 emphasizes the use of the convergence of information technology and
manufacturing technology to change the current industrial production and service models [2]. However, Industry 4.0 can not be
realized easily, the process of companies transforming from industrialization to Industry 4.0 smart factories is defined as digital
transformation [3]. The proliferation of digital technologies such as big data, cloud computing, Internet of Things, blockchain, and
robotics are disrupting traditional business models and innovation approaches [4]. As an important tool for achieving sustainable
development, innovation is receiving increasing attention in business research [5]. Therefore, it is of great value to explore the impact
of digital transformation on innovation as well as the mechanisms by which digital transformation works.
Existing research on digital transformation has focused on economic efficiency, environmental performance and business models
[6]. [7] adopted listed companies data from 2007 to 2019 and found that digital transformation increased the total factor productivity.
An existing literature used digital transformation as an intermediate variable to explore the impact of the digital economy on inno­
vation [8]. The cited authors used the number of patent applications to measure innovation performance and found that the digital
economy could stimulate firm innovation by driving the digital transformation. As can be seen, few studies have directly explored the

* Corresponding author.
E-mail addresses: cpy702018@163.com (P. Chen), iamskkim@dankook.ac.kr (S. Kim).

https://doi.org/10.1016/j.heliyon.2023.e13916
Received 11 August 2022; Received in revised form 9 February 2023; Accepted 16 February 2023
Available online 22 February 2023
2405-8440/© 2023 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
P. Chen and S. Kim Heliyon 9 (2023) e13916

relationship between digital transformation and innovation [9,10]. [11] pointed out that simply using the number of patent appli­
cations to measure firm innovation is imperfect for the reason of invention patents and appearance utility patents have different
characteristics on economic and environmental dimensions. In addition, many scholars mentioned that digital transformation is
disrupting traditional innovation models [4], but few scholars explored how digital transformation affects innovation. An in-depth
study of this relationship provides a new empirical basis for business managers to change their traditional thinking about innova­
tion [12]. Therefore, invention patents and utility patents are used in this paper to capture the quantity and quality of innovation, the
relationship between digital transformation and innovation are explored from the perspective of innovation factor flow, which fill the
gap of digital transformation research.
First, the relationship between digital transformation and innovation are explored by taking using Chinese manufacturing listed
companies as the research objects. Second, based on the factor mobility perspective, the mechanisms of the role of digital trans­
formation (knowledge mobility, technician mobility, R&D investment and innovation awareness) are explored. Finally, based on
enterprise heterogeneity, the enterprises are classified into state-owned and non-state-owned enterprises, high-tech and non-high-tech
enterprises, and heavily polluting and non-heavily polluting enterprises. Through this study, to answer the following questions can be
sought: 1) Can digital transformation increase corporate innovation? 2) What innovation factor flows are being changed by digital
transformation? 3) Which kind of corporate innovations are more sensitive to digital transformation?
This paper has some potential contributions. First, unlike previous studies, this paper focuses on the impact of digital trans­
formation on innovation quantity and innovation quality, which enriches the literature on digital transformation. Second, we intro­
duce the innovation factors from a factor mobility perspective. The functional mechanisms of digital transformation are explored,
providing us with evidence about how digital transformation subverts traditional innovation models. Third, the attitudes of different
types of corporate toward digital transformation are explored through heterogeneity analysis, which provides guidance directions for
managers of specific types of companies. Finally, possible endogeneity issues are tested in digital transformation to ensure the stability
of our findings. Overall, this study fills an existing gap and provides a clear and valuable empirical basis for policy makers and business
managers.

2. Literature review and research hypotheses

2.1. The digital transformation and innovation performance

The definition of organizational boundaries is that all organizations have boundaries; there are boundaries within and outside the
organization, as well as between organizations [13]. With the development of technology [14], organizational boundaries are
becoming blurred. In other words, the widespread use of digital technology enhanced the flow of information between organizations,
and within organizations, and eliminating inter-organizational boundaries [15]. Digital technologies can help firms break through own
resource and capability deficiencies and leverage external resources and capabilities to achieve strategies of expanding into new
markets and developing new products. Based on a study of Chinese manufacturing A-share listed companies during 2016–2019 [16],
found that the application of blockchain technology improved the collaborative innovation performance.
Furthermore, according to the information processing view (IPV), business performance can be improved when information
processing capabilities can meet the needs of the business [17]. Digital technology can enhance the information processing capabilities
of the firm and reduce the interference of non-demanded information [18]. Specifically, information is a carrier of knowledge, and
digital technology can help firms keep track of the information they need in a timely manner [19]. [20] found that firms with strong
information processing capabilities were more likely to adjust their innovation strategies timely to respond to changing circumstances
[21]. Digital technologies can also help firms grasp product sales situation and customer demand to adjust their innovation direction
[22]. [23] found that information processing capabilities can positively improve the relationship between information-intensive
customer engagement (ICI) practices and the number of innovations. Based on the above theory, the following hypothesis are
proposed.
H1a. Digital transformation can improve corporate innovation quantity
H1b. Digital transformation can improve corporate innovation quality

2.2. The mediating role of innovation factors

The innovation factor refers to the resources and capabilities associated with innovation, it is argued that innovation factors may be
an important way in which digital transformation affects innovation performance [24]. Considering the availability of data, factors
including knowledge flow, technical staff, R&D investment and innovation awareness are only considered as innovation factors [25,
26]. The information processing view states that information processing capabilities reflect a firm’s sensitivity to information and that
firms can more likely maintain a market advantage when they have timely access to the information they need [27]. The application of
digital technologies can improve the firm information processing ability so that they can capture timely information that can help them
innovate. In addition [15], pointed out that the prevalence of digital technology broke through traditional organizational boundaries
and had a significant impact on organizational boundary theory. Digital technologies weaken the communication barriers and
accelerate the flow of factors between firms [28]. The role of innovation factors can also be explained by resource-based theory, which
states that firms can maintain competitive advantage when they have “heterogeneous” resources. Because then, they gain the ability to
innovate sustainably [29].

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P. Chen and S. Kim Heliyon 9 (2023) e13916

Knowledge flow and talent mobility are considered as one of the important paths of action for digital transformation [30]. used firm
data from 1992 to 1998 and found that the use of Internet technologies can overcome distance barriers between firms and increase the
likelihood of referencing knowledge between the two (knowledge flow increased) [31]. used firm data from 117 countries from 2006
to 2011 and found that the application of advanced technologies led to knowledge spillovers, which in turn promote firm innovation.
By using a questionnaire [32], found that digital transformation drives firm knowledge sharing, which in turn stimulates innovation.
Digital technologies may be changing employment patterns and work environments [33]. Digital technologies are making it easier for
companies such as monster, saongroup, 51job, and other job boards to recruit to meet their demand for highly skilled talent. Digital
transformation implies the use of new technologies, leading to a high demand for technical talent [34]. Technologists have a higher
ability to accept, decode and apply new knowledge, increasing the innovation capacity [35]. Based on the above theoretical analysis,
the following hypothesis are proposed.
H2a. Digital transformation can facilitate knowledge flows
H2b. Knowledge flows can stimulate innovation
H3a. Digital transformation can facilitate technology talent mobility
H3b. Technology talent mobility can inspire innovation
In addition, it is believed that R&D investment and innovation awareness are also important role paths of digital transformation.
Digital technologies have significant advantages in evaluating innovation projects [36], such as project riskiness, profitability, etc.
[37] pointed out that efficient digital technology can attract external investors, which in turn boosts R&D investment. In addition, the
use of digital technology stimulates the innovation of business managers. The ability to capture information, the ability to evaluate
projects and various innovation elements encourage business managers to adopt aggressive innovation strategies [38]. [39] mentioned
that digital technology encourages firms to flexibly innovate. Both innovation awareness and R&D investment can touch the inno­
vation output of firms [40,41]. Based on the above theoretical analysis, the following hypotheses are proposed.
H4a. Digital transformation can increase R&D investment
H4b. R&D investment stimulates innovation
H5a. Digital transformation stimulates innovation awareness
H5b. Innovation awareness promotes innovation

3. Data and model design

3.1. Sample

We used the original sample of listed Chinese manufacturing companies. Considering the impact of extreme values such as the
financial crisis in 2008 and covid-19 in 2020 on the regression results, our study years are 2009–2019. Financial data were obtained
from the China Stock Market & Accounting Research Database (CSMAR) and the Wind database. We excluded firms with significant
information deficiencies and finally obtained 16,159 firm-year observations.

3.2. Variables

3.2.1. Dependent variable: innovation performance

We measure the innovation performance from two perspectives: innovation quantity and innovation quality, namely, using patent
applications (Pat) to measure innovation quantity and invention patent applications (Inpat) to measure innovation quality. On the one
hand, patent data depicts a more intuitive picture of a firm innovation level compared to R&D investment [42]. On the other hand,
according to China’s patent law, patents are classified into invention patents, utility patents and design patents. Inventive patents have
high-value characteristics compared to other patent types [43]. We use the natural logarithm of patent +1 to measure firm innovation
performance.

3.2.2. Independent variable: digital transformation (DT)

It is difficult to describe a firm’s digital transformation with a single variable [44], we use a new approach to quantify the digital
transformation of firms - textual analysis. We use the logarithm of the frequency of relevant terms in financial annual reports to
quantify digital transformation [45]. We retrieved keywords related to digital technologies based on the methods of [8]. First, we used
deep learning methods to obtain 153 related keywords, such as, big data, information technology, intelligence, robotics, Internet of
Things, blockchain, automation, digitization, and cloud computing. Then, the frequency of these keywords in corporate annual
financial reports was retrieved using text analysis methods. In addition, two independent researchers re-examined the keywords to
ensure the accuracy of the vocabulary. These data acquisitions and methods were based on the Wingo text analytics platform, which is
the first intelligent platform for text retrieval in China.

3.2.3. Mediation variables: innovation factors

Innovation factors refer to the combination of resources and capabilities associated with innovation, including knowledge capital,

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P. Chen and S. Kim Heliyon 9 (2023) e13916

human capital, physical capital, and innovation awareness [46]. We use patent citation frequency to measure knowledge flows (the
percentage of patent citations to the industry average, marked as KF, the number of technicians to measure human capital (TE), and the
natural logarithm of R&D investments (RD) to describe physical capital [47–49]. We explore the frequency of the occurrence of
innovation-related keywords in financial annual reports to measure innovation awareness marked as IA [50]. Keywords include jìshù
(Technology), chuàngxı̄n (innovation), yánjiū (Research), kāifā (Development), zhuānlì (Patant), fāmíng (Invention), kējì (Science &
Technology), zhı̄shi (Knowledge), and other pinyin Chinese words.

3.2.4. Control variables

Referring to Refs. [51,52] study, we control for the following variables: age, firm growth, firm size, cash flow, debt ratio, fixed
capital investment ratio, board size, and shareholding concentration. 1) Age is the logarithm of the age of the enterprise. 2) Firm
growth (Growth) is the growth rate of operating income.3) Firm size (Size) is the logarithm of the number of employees. 4) Cash flow
(Cash) is the ratio of cash generated from operations to total assets. 5) The debt ratio (Lev) is the ratio of total liabilities to total assets.
6) Fixed capital investment (Fix) ratio is the ratio of net fixed assets to total assets. 7) Board size (BS) is the logarithm of the total
number of board members. 8) Shareholding concentration (SC) is the sum of the proportion of shares held by the top 5 largest
shareholders. Variables are defined in Table 1.

3.3. Model design

We construct the following model to test the relationship between digital transformation and innovation as equation (1).

( ) ∑
8
Pati,t Inpati,t = β0 + β1 DTi,t + γ i control + μi + δt + εi,t (1)
i=1

where the dependent variables are quantity of innovation (Pat) and quality of innovation (Inpat); DT denotes digital transformation;
controls denote the nine control variables; and εi,t is a random disturbance term. Fixed time effects (δt ) and individual effects (μi ) are
used to mitigate the disturbance of the unobserved terms.
To test the mechanisms of digital transformation, the following model was built as equations (2) and (3).
∑
8
Medi,j,t = α0 + α1 DTi,t + θi control + μi + δt + εi,t (2)
i=1

( ) ∑
8
Pati,t Inpati,t = α0 + α1 DTi,t + αj Medi,j,t + θi control + μi + δt + εi,t (3)
i=1

where the Medi,j,t is the innovation factor, including knowledge flows (KF), technicians (TE), R&D investment (RD) and innovation
awareness (IA).

4. Results and discussion

4.1. Descriptive statistics and correlation analysis

Table 2 shows that the mean, maximum and minimum values for quantity of innovation are 2.528, 0 and 8.750, respectively. The
mean value for quality of innovation is only 1.266. This means that most Chinese companies are in a low-quality innovation stage and

Table 1
Variable definition.
Name Variable Definition Previous studies Source

Dependent variable Pat The natural logarithm of using patent applications [42] Wingo
Inpat The natural logarithm of invention patent applications [43] Wingo
Independent variable DT Logarithm of the frequency of digital-related words in financial annual reports [8] Wingo
Mediation variables KF The percentage of patent citations to the industry average [47] Wingo
RD The natural logarithm of R&D investment [49] CSMAR
TE The number of technicians [48] CSMAR
IA Frequency of innovation-related keywords in financial annual reports [50] Wingo
Control variables Age Logarithm of the age of the enterprise [51,52] CSMAR
Growth The growth rate of operating income
Size The logarithm of the number of employees
Cash The ratio of cash generated from operations to total assets
Lev The ratio of total liabilities to total assets
Fix The ratio of net fixed assets to total assets
BS The logarithm of the total number of board members
SC The sum of the proportion of shares held by the top 5 largest shareholders

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prefer quantitative level of innovation. The maximum (6.864), minimum (0) and mean (1.959) values of digital transformation tell us
that most Chinese firms are in the industrialization stage and are in low-level digital transformation. The situation is the same for the
other variables and the development is very uneven among the companies.
In addition, Table 3 provides the results of the correlation regression of the quantity of innovation and the quality of innovation. We
found that the correlation coefficients are both less than 0.7 [53]. And the multicollinearity test finds a VIF value of 1.15 for both,
which is less than 10 [54]. This indicates that there is no multicollinearity in our model.

4.2. Baseline analysis

Table 4 shows the regression results of digital transformation on the innovation quantity and quality. The results show that the
coefficient of digital transformation is significantly positive, regardless of the fixed time effect or the added control variables. Taking
columns (3) and (6) as an example, the impact of digital transformation on the innovation quantity is 0.095 at the 1% significant level
and the impact on the innovation quality is 0.070 at the 1% significant level. It is consistent with hypotheses H1a and H1b. This result
suggests that digital transformation has a greater impact on the innovation quantity than on the innovation quality.

4.3. Robustness test

Table 5 shows the regression results for the three robustness tests. Columns (1) and (2) are the results of regressions using granted
patents as a measure of innovation performance. Considering the possible endogeneity problem within the model. We use the number
of Internet users in each province as an instrumental variable (IV) to address the endogeneity problem [55]. Internet users per province
implies a regional level of digitization that can affect the corporate digital transformation without directly affecting the corporate
strategy. The first stage (column 3) shows that the number of Internet users facilitates the digital transformation. The F-value is 509.22,
which is much larger than 10. This indicates that the choice of our instrumental variable is effective [56]. The second stage regression
results (columns 4 and 5) tell us that digital transformation has a significant positive impact both in terms of quality and quantity of
innovation. Column (6) and (7) show the regression results after we exclude firms located in municipalities and provincial capitals.
This is because provincial capitals tend to receive more resource bias and attention [57]. All data are from provincial statistical
yearbooks. The results in Table 5 show that regression results are found to be robust.

4.4. The mediating role of innovation factors

Tables 6 and 7 shows the mechanism of action of digital transformation. The path from digital transformation to knowledge flow is
significant and hypothesis H2a is supported (β = 0.0007, p < 0.1). The path from digital transformation to technicians is significant,
with hypothesis H3a supported (β = 21.584, p < 0.01). Digital transformation to R&D investment (H4a: β = 0.356, p < 0.01) and
innovation awareness (H5a: β = 0.001, p < 0.01) on the path was also considered significant. The coefficient of the mediating variable
remains significantly positive after the inclusion of the mediating variable. This verifies the hypotheses H2b, H3b, H4b, H5b. This
suggests that knowledge mobility, technicians, R&D investment, and innovation awareness are important paths through which digital
transformation promotes innovation.
Table 8 describes the intensity of each effect. It can be seen that at the level of the number of innovations, the direct effects of digital
transformation are much greater than the various indirect effects. Taking the path of knowledge flow as an example, the indirect effect
of digital transformation is 0.002 at the 1% significant level, while the direct effect is 0.093 at the 1% significant level. Similarly, at the
level of innovation quality, the direct effects of digital transformation are much larger than the indirect effects. To test the stability of
the various effects, we verified the stability of the results by 1000 bootstrap method [58].

Table 2
Descriptive statistics.
Variable Obs Mean Std. Dev. Min Max

Pat 16,159 2.528 1.570 0 8.750

Inpat 16,159 1.266 1.246 0 8.038
DT 16,159 1.959 1.379 0 6.864
RD 14,966 17.74 1.490 8.006 24.615
IA 16,159 0.900 0.391 0.045 3.394
KF 16,159 0.019 0.062 0.00001 1
TE 16,111 634.656 981.737 29 5287
Age 16,159 2.695 0.423 0 3.951
Growth 16,158 0.253 5.385 − 0.991 666
Size 16,153 7.709 1.170 0.693 12.342
Cash 16,158 0.169 0.139 − 0.165 0.883
Lev 16,159 0.409 0.556 0.007 42.857
Fix 16,158 0.235 0.142 0 0.902
BS 16,159 8.567 1.619 0 18
SC 16,159 53.621 14.715 23.476 82.996

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Table 3
Correlation analysis.
1 2 3 4 5 6 7 8 9 10

1.Pat 1.000
2.DT 0.351* 1.000
3.Age 0.035* 0.076* 1.000
4.Growth 0.100* 0.082* − 0.112 1.000
5.Size 0.427* 0.059* 0.139* 0.021* 1.000
6.Cash − 0.005 0.045* − 0.147* 0.073* − 0.196* 1.000
7.lev 0.177* − 0.066* 0.136* − 0.021* 0.469* − 0.441* 1.000
8.Fix − 0.111* − 0.256* 0.055* − 0.090* 0.219* − 0.389* 0.215* 1.000
9.BS 0.080* − 0.128* 0.009 − 0.009 0.249* − 0.016* 0.161* 0.097* 1.000
10.SC 0.014 0.061* − 0.198* 0.086* 0.001 0.164* − 0.183* − 0.067* − 0.041* 1.000
1.Lnpat 1.000
2.DT 0.327* 1.000
3.Age 0.060* 0.076* 1.000
4.Growth 0.089* 0.082* − 0.112* 1.000
5.Size 0.381* 0.059* 0.139* 0.021* 1.000
6.Cash − 0.019* 0.045* − 0.147* 0.073* − 0.196* 1.000
7.lev 0.162* − 0.066* 0.137* − 0.021* 0.469* − 0.441* 1.000
8.Fix − 0.088* − 0.256* 0.055* − 0.090* 0.219* − 0.389* 0.215* 1.000
9.BS 0.087* − 0.128* 0.009 − 0.009 0.249* − 0.016* 0.161* 0.097* 1.000
10.SC − 0.014 0.061* − 0.198* 0.086* 0.001 0.164* − 0.183* − 0.067* − 0.041* 1.000

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

Table 4
Baseline analysis.
(1) (2) (3) (4) (5) (6)

Variables Pat Pat Pat Inpat Inpat Inpat

DT 0.408*** 0.136*** 0.095*** 0.314*** 0.098*** 0.070***

(0.009) (0.011) (0.010) (0.007) (0.009) (0.009)
Age 0.136* 0.146*
(0.070) (0.060)
Growth − 0.003* − 0.002
(0.001) (0.001)
Size 0.473*** 0.322***
(0.016) (0.014)
Cash − 0.082 0.012
(0.076) (0.065)
Lev 0.042** 0.047*
(0.014) (0.012)
Fix − 0.363*** − 0.210*
(0.098) (0.083)
BS 0.012 0.017*
(0.008) (0.007)
BC 0.002* 0.002*
(0.001) (0.001)
C 1.728*** 1.285*** − 2.568*** 0.650*** 0.344*** − 2.554***
(0.018) (0.032) (0.224) (0.016) (0.027) (0.191)
Firm Yes Yes Yes Yes Yes Yes
Year No Yes Yes No Yes Yes
Obs 16,159 16,159 16,151 16,159 16,159 16,151
R-sq 0.723 0.756 0.771 0.687 0.725 0.736

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

4.5. Heterogeneity analysis

Table 9 shows the results of the regressions based on firm heterogeneity. We classify the enterprises into state-owned and non-state-
owned enterprises (SOE and Non-SOE), high-tech and non-high-tech enterprises (HTE and Non-HTE), and heavily polluting and non-
heavily polluting enterprises (HPE and Non-HPE). The classification is based on the information provided by the CSMAR database.
The findings in columns (1) and (2) tell us that the coefficient of digital transformation for SOEs is 0.082 at the 1% significant level
and the coefficient of digital transformation for non-SOEs is 0.103 at the 1% significant level. This implies that digital transformation
has a greater impact on innovation in non-SOEs. Columns (3) and (4) show the regression results for HTE and Non-HTE. We find that
digital transformation has a greater impact on innovation of Non-HTE (β = 0.126, p < 0.001). The results in columns (5) and (6) show

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Table 5
Robustness test.
Replace the dependent variable IV method Replace the sample

(1) (2) (3) (4) (5) (6) (7)

Variables Pat Inpat DT Pat Inpat Pat Inpat

DT 0.112*** 0.107*** 0.535** 0.660** 0.099*** 0.116***

(0.011) (0.010) (0.232) (0.211) (0.012) (0.012)
IV 0.0001***
(0.000)
C − 2.207*** − 2.355*** 1.222*** − 2.948*** − 3.184*** − 2.329*** − 2.207***
(0.234) (0.216) (0.130) (0.460) (0.418) (0.266) (0.254)
Control Yes Yes Yes Yes Yes Yes Yes
Firm Yes Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes Yes
F statistic 509.22
Obs 16,150 16,150 10,021 10,201 10,201 11,368 11,368
R-sq 0.770 0.760 0.141 0.799 0.790 0.760 0.748

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

Table 6
The mediation of innovation factors on Pat.
(1) (2) (3) (4) (5) (6) (7) (8)

Variables RD AI KF TE Pat Pat Pat Pat

DT 0.356*** 0.001*** 0.0007** 21.584* 0.071*** 0.093*** 0.077*** 0.090***

(0.008) (0.003) (0.000) (1.831) (0.011) (0.010) (0.011) (0.011)
RD 0.163***
(0.011)
KF 2.799***
(0.310)
AI 19.788**
(0.035)
TE 0.0002**
(0.011)
Control Yes Yes Yes Yes Yes Yes Yes Yes
Firm Yes Yes Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes Yes Yes
Obs 14,959 16,150 16,150 16,136 14,959 16,150 16,150 14,959
R-sq 0.853 0.782 0.894 0.279 0.773 0.773 0.772 0.773

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

Table 7
The mediation of innovation factors on Lnpat.
(1) (2) (3) (4) (5) (6) (7) (8)

Variables RD AI KF TE Lnpat Lnpat Lnpat Lnpat

DT 0.356*** 0.001*** 0.0007** 21.584* 0.047*** 0.067*** 0.064*** 0.061***

(0.008) (0.003) (0.000) (1.831) (0.009) (0.009) (0.009) (0.009)
RD 0.116***
(0.010)
KF 4.183***
(0.263)
AI 6.525*
(0.029)
TE 0.00003***
(0.00001)
Control Yes Yes Yes Yes Yes Yes Yes Yes
Firm Yes Yes Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes Yes Yes
Obs 14,959 16,150 16,150 16,136 14,959 16,150 16,150 14,959
R-sq 0.853 0.782 0.894 0.279 0.773 0.773 0.772 0.773

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

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Table 8
Description of each effect.
Paths Indirect effects Direct effects Total effects IR Sobel test Bootstrap test

DT → KF → Pat 0.002*** 0.093*** 0.095*** 0.021 0.002* 0.002**

DT → TE → Pat 0.004*** 0.090*** 0.094*** 0.043 0.004*** 0.004***
DT → RD → Pat 0.006*** 0.071*** 0.077*** 0.078 0.006*** 0.006***
DT → AI → Pat 0.019*** 0.076*** 0.095*** 0.200 0.019*** 0.019***
DT → KF → Inpat 0.003** 0.067*** 0.070*** 0.043 0.003** 0.003**
DT → TE → Inpat 0.007*** 0.061*** 0.068*** 0.103 0.007*** 0.007***
DT → RD → Inpat 0.004*** 0.047*** 0.051*** 0.078 0.04*** 0.04***
DT → AI → Inpat 0.006* 0.064*** 0.070*** 0.086 0.006* 0.006*

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1. Bootstrap test shows
only indirect effect, and TR is the ratio of indirect effects to total effects.

Table 9
Heterogeneity analysis.
(1) (2) (3) (4) (5) (6)

Variables SOE Non-SOE HTE Non-HTE HPE Non-HPE

DT 0.082*** 0.103*** 0.072*** 0.126*** 0.086*** 0.097***

(0.017) (0.013) (0.014) (0.018) (0.017) (0.013)
C − 3.145*** − 2.439*** − 2.910*** − 2.441*** − 2.979*** − 2.315***
(0.422) (0.271) (0.315) (0.421) (0.398) (0.271)
Control Yes Yes Yes Yes Yes Yes
Firm Yes Yes Yes Yes Yes Yes
Year Yes Yes Yes Yes Yes Yes
Obs 5980 10,171 9606 6545 6384 9767
R-sq 0.791 0.756 0.779 0.812 0.690 0.788

Note: *** indicates significance at the p < 0.01, ** indicates significance at the p < 0.05, * indicates significance at the p < 0.1.

that digital transformation has a greater impact on innovation in non-HPE (β = 0.097, p < 0.001) than in HPE (β = 0.086, p < 0.001).

4.6. Discussion

This study makes several contributions to the literature on digital transformation and innovation. First, based on the information
processing view and organizational boundaries, it is found that digital transformation can significantly improve the innovation ca­
pabilities (both quantity and quality). This is in accordance with the research of [8], who found that digital transformation promotes
firm innovation. Digital transformation optimizes firm resource allocation, strengthens inter-firm linkages, blurs boundaries between
firms, and offsets R&D costs.
From a factor mobility perspective, it is found that innovation factors play a significant role in the relationship between digital
transformation and innovation. First, digital transformation can alleviate barriers to knowledge flow. The proliferation of digital
technologies accelerates information processing and flow, thus accelerating knowledge flow [59]. Digital technologies reduce the cost
of knowledge storage and make it easier to store information [60]. Second, digital transformation can attract an influx of skilled
people. Digital transformation may improve the work environment (safety, comfort, and efficiency) and attract more technicians [61].
Third, digital transformation can facilitate R&D investments. It can reduce the waste of non-R&D time and achieve efficiency in
innovation [62]. Finally, digital transformation can increase the innovation awareness of corporate managers. Digital technologies
help companies to understand how their peers are innovating. Managers are forced to innovate to maintain market position [62].
The mediating role of digital transformation is further explored. At the innovation quantity level, the mediating effect of innovation
awareness is greater than the mediating effect of R&D investment, the mediating effect of technicians, as well as the mediating effect of
knowledge flow. At the level of innovation quality, the mediating effect of technicians is greater than the mediating effect of innovation
awareness, the mediating effect of R&D investment, as well as the mediating effect of knowledge flow. The technicians are considered
as carriers of knowledge and innovation, who can contribute more original ideas and methods to improve the quality of innovation
[63]. In addition, the mediating effects of knowledge flows, technicians and R&D investments on innovation quality are all greater
than those on innovation quantity. Innovation quality implies technological breakthroughs and original innovations [64], which
require a more balanced and well-developed R&D system. This implies that firms need to invest more in technical staff, knowledge
flows and R&D investments [65].
Finally, heterogeneity analysis shows that digital transformation can mitigate imbalances among firms. This is consistent with the
findings of [45], who found that digital transformation can break monopolies based on firm size. SOEs, HTEs, and HPEs have unique
advantages such as political advantages and policy preferences. Non-SOEs, non-HTEs, and non-HPEs can use digital technology to
overcome social disadvantages and attract social capital inflows to compensate for their shortcomings.
Overall, this study expands the definition of organizational boundaries and information processing views in digital transformation
research. With the rapid development of digital technology, more and more companies are using digital technology to improve their

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P. Chen and S. Kim Heliyon 9 (2023) e13916

innovation capabilities. Innovation factors such as knowledge mobility, talent mobility, R&D investment and innovation awareness
can all contribute to firm innovation under the context of digital transformation. Finally, it is found that digital transformation has firm
heterogeneous for firm innovation, which provides new empirical and theoretical perspectives for emerging developing countries such
as China to promote Industry 4.0 and innovation.

5. Conclusions, suggestions and limitations

For the first time, the relationship between digital transformation and innovation is studied from the perspective of innovation
factors. The impact of digital transformation on firms’ innovation performance and its mechanism of action were investigated by using
Chinese listed firms data between 2009 and 2019. The conclusions are as follows. (1) The corporate digital transformation was
measured through based on textual analysis methods and it was found that digital transformation can promote corporate innovation.
(2) Knowledge flow, technical personnel, R&D investment, and innovation awareness are important mediating paths. (3) In the
innovation quantity dimension, the mediating role of innovation awareness is greater. And in the innovation quality dimension, the
mediating role of technicians is greater. (4) Digital transformation has a greater impact on innovation of non-SOEs, non-high-tech
enterprises and non-heavily polluting enterprises, alleviating the gap between different types of firms. The results of this paper
alleviate the concerns of digital transformation in developing countries such as China and provide experiences and evidence for them
to promote Industry 4.0 and sustainable innovation.
Based on the analysis results, the following policy recommendations are proposed. For the government. First, government should
strengthen digital technology infrastructure to accelerate the digital transformation. Second, the government should establish and
improve policies to offset the cost burden of digitalization for enterprises. Third, the government should improve knowledge protection
regulations and develop active talent admission policies and R&D subsidy mechanisms to facilitate the flow of innovation factors. For
enterprise managers. First, enterprise managers should recognize the advantages of digital transformation and actively adopt digital
transformation strategies and transit positively to Industry 4.0 stage so as to achieve sustainable innovation. Second, managers should
break organizational boundaries, increase communication with other organizations, appropriately adjust the treatment of technical
staff, increase innovation-related training, and break the inherent innovation mindset to achieve sustainable innovation. Finally,
enterprise managers should fully realize that different enterprises have different attitudes toward digital transformation. Namely,
managers of non-state-owned enterprises, non-high-tech enterprises and other enterprises that are at a disadvantage in the economic
market should adopt digital transformation strategies, since digital transformation can reduce the gap between themselves and giant
companies that occupy a dominant position.
This paper still has some limitations. First, this paper uses only four variables to measure innovation factors; in other studies [66],
culture is also considered as an innovation factor. Second, digital transformation may be influenced by government intervention and
market-driven aspects, which are not considered in this paper. Third, the long-term effects of digital transformation have been
neglected. Finally, innovation factors co-exist, it is difficult to analyze the relationship between them. In future research, we will deeply
explore the impact of digital transformation on innovation.

Author contribution statement

PENGYU CHEN: Conceived and designed the experiments; Performed the experiments; Analyzed and interpreted the data;
Contributed reagents, materials, analysis tools or data; Wrote the paper.
SangKyum Kim: Conceived and designed the experiments; Analyzed and interpreted the data; Contributed reagents, materials,
analysis tools or data; Wrote the paper.

Funding statement

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Data availability statement

Data will be made available on request.

Declaration of interest’s statement

The authors declare no conflict of interest.

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