Microeconomic Effects of Digital Transformation on Total Factor Productivity: Moderating Effects and Mechanisms

Abstract

This study examines the impact of digital transformation on the total factor productivity (TFP) of Chinese listed companies. Using a firm-level panel dataset from 2007 to 2024 and applying the Levinsohn–Petrin method to estimate TFP, we find that digital transformation significantly enhances firm productivity. Both Digital Technology Application (DTA) and Underlying Technologies (UT) contribute positively to TFP, with the effect of UT being more pronounced. Heterogeneity analysis indicates that the productivity-boosting effect of digital transformation is stronger in firms with higher market value, greater industry competition, and those outside high-pollution industries (HPEs). Mechanism analysis shows that digital transformation promotes TFP through innovation, human capital optimization, cost reduction, and operational efficiency. Moreover, external macro factors such as digital infrastructure, intellectual property protection and marketization further moderate this relationship. Finally, the influence of DT on TFP shows a threshold effect related to profitability fluctuations and cash flow conditions. Our findings provide robust empirical evidence on how digital transformation reshapes firm-level productivity dynamics and highlight the key conditions under which it yields optimal economic returns.