• Examining the impact of state grants on the digital transformation (DT) of SMEs through a company-level analysis. • Showing that grant participation, rather than the magnitude of funding, drives DT progress, highlighting policy impetus. • Analyzing internal DT investments as signals of managerial attention and commitment, reinforcing readiness for change. Although small and medium-sized enterprises (SMEs) are key drivers of economic growth and innovation, they often struggle with digital transformation, which is critical for their long-term competitiveness. And, while state grants are a common policy instrument to stimulate innovation within SMEs, their role in the digital transformation of SMEs is less understood. This study examines the impact of a state grant program designed to accelerate digital transformation based on a novel dataset of 3,087 German SMEs—including companies that received state grants and others that did not. Our findings reveal that state grants significantly boost digital transformation in SMEs, even with modest funding amounts. Notably, higher levels of funding do not further increase the degree of digital transformation. Securing a grant could thus provide vital impetus for initiating the digital transformation in firms by helping them to overcome institutional barriers. We also find that higher internal investments by SMEs can contribute to a stronger change in digital transformation, underscoring the importance of internal commitment alongside external support. By disentangling the company-level effects of state grants on digital transformation, our study advances information systems and management research by demonstrating that even small grants can effectively drive change and may also promote digital transformation priorities. We also introduce a multidimensional framework, tailored to SMEs, to quantify digital transformation. Our findings have important implications for the design of policy instruments that address the distinct challenges and opportunities facing SMEs in the digital age.
Demann et al. (Mon,) studied this question.