The Heterogeneous Impacts of Digital Transformation on Firms’ Internationalization: Evidence from China

This is the authors' abstract. We don't add key points for this paper.

Using Chinese A-share-listed firms from 2013 to 2023, this study examines whether and how digital transformation affects firm internationalization. We measure internationalization along both the intensive and extensive margins, including overseas revenue share, overseas operating revenue, internationalization participation, and a BERT-based internationalization indicator constructed from annual reports. Digital transformation is mainly measured by firms’ digital intangible assets, and we further use digital patents, digital job postings, and annual-report digital keyword disclosure as alternative measures. The results show that digital transformation significantly promotes firm internationalization. A one-unit increase in the digital transformation is associated with a 1.3-percentage-point higher probability of internationalization and a 0.8-percentage-point higher overseas revenue share. Further analysis based on the Awareness-Motivation-Capability (AMC) framework shows that digital transformation promotes internationalization by improving firms’ awareness of overseas opportunities, strengthening their motivation to expand abroad, and enhancing their capabilities through higher productivity and lower financing constraints. The effect is more pronounced among firms with higher initial productivity, suggesting that preexisting capabilities affect how firms convert digital investment into international expansion. Evidence from recruitment data further shows that digital transformation is associated with higher demand for highly educated workers, indicating that human-capital upgrading is an important part of this process. Overall, this study provides firm-level evidence that digital transformation supports Chinese firms’ internationalization by improving both market expansion and organizational capabilities.