Unlocking the U-shaped relationship between digital technology adoption and firms’ innovation performance

The impact of digital technology adoption on firms’ innovation performance has attracted widespread attention, but existing research has not reached consistent conclusions. Based on absorptive capacity theory, this study examines the nonlinear relationship between digital technology adoption and innovation performance in emerging economy enterprises (EEEs). Using empirical data from 1,711 high-tech listed companies in China between 2010 and 2019, we identify a U-shaped relationship between digital technology adoption and innovation performance. Specifically, the inflection point occurs when digital technology adoption exceeds a threshold value of 1.37, indicating that innovation performance improves only after reaching critical levels of adoption. Additionally, we find that foreign ownership accelerates digital technology adoption and enhances innovation performance, whereas returnee CEOs do not significantly moderate this relationship. The findings suggest that when digital technologies are adopted, EEEs should focus on surpassing critical adoption thresholds and integrate them with foreign shareholders to enhance their innovation performance. Academically, by highlighting the roles of absorptive capacity and ownership structure, this study contributes to a more nuanced understanding of how digital technology adoption impacts EEEs’ innovation performance, thereby offering new insights for knowledge management research and practice in the digital era.