Enterprise digital transformation and investment efficiency: Empirical evidence from listed enterprises in China

In this paper, we examine the effect of digital transformation on investment efficiency using data from Chinese-listed enterprises from 2007 to 2021. We find that digital transformation significantly enhances investment efficiency by reducing information asymmetry between insiders and outsiders of enterprises and this effect is significant only for private enterprises. Through the application of unconditional quantile regression, we observe that the beneficial impact of digital transformation on investment efficiency tends to diminish as the efficiency improves, especially for private enterprises. Mechanism analysis suggests that digital transformation alleviates information asymmetry through two main channels: regulating earnings management to address underinvestment and mitigating excessive leverage to curb overinvestment. Ownership-based heterogeneity analysis confirms that these mechanisms at play vary across enterprise types, with significant effects observed exclusively in private enterprises. Our findings suggest that policy-makers and investors should leverage digital technology to reduce information asymmetry and improve efficiency.