Unintended productivity gains: How online negative rumors drive digital transformation in Chinese firms

This paper documents an unintended consequence of online negative rumors: rather than impairing firm performance, exposure to officially debunked, reputationally damaging rumors generates a robust net positive effect on total factor productivity (TFP). Using a manually constructed dataset of such rumors targeting Chinese A-share listed firms from 2015 to 2023, we exploit the 2016 launch of Douyin as an exogenous shock to the rumor propagation environment and employ propensity score matching to establish causality. Mechanism analysis reveals two competing channels. Rumors erode entrepreneurial confidence, constituting an inhibitory force, but more powerfully compel firms to accelerate digital transformation, which fully mediates the observed productivity gains. This finding surfaces a critical policy tension: the same unverified noise that disrupts short-term market integrity can, by forcing substantive strategic upgrading, inadvertently strengthen long-term productive capacity. Our results call for a calibrated approach to information governance that couples the policing of malicious misinformation with policies facilitating firms’ digital transformation, particularly during crises when the motivation to upgrade is strongest.