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Enterprise's R&D and Innovation Management

Digital Transformation, Innovation Capability, and Enterprise  Performance 

Wen Xingqi, Li Xiuqi 

(Economics and Management School, Wuhan University, Wuhan 430072, China)

Abstract: Digital transformation (DT) has emerged as a critical driver for high-quality devel⁃ opment in manufacturing enterprises, yet its complex impact on enterprise performance remains  a subject of ongoing debate in academic and business circles. This study empirically examines  the nonlinear relationship between DT and enterprise performance, with a focus on the mediating  role of innovation capability, using panel data from China's A-share manufacturing listed enter⁃ prises (2011—2023). A two-way fixed-effects model and hierarchical regression analysis are  employed to test hypotheses, while heterogeneity analysis explores variations across ownership  types and enterprise sizes. The key findings reveal several important insights: First, the study  confirms an inverted U-shaped relationship between DT and enterprise performance, demon⁃ strating that while moderate levels of digital transformation significantly enhance organizational  performance, excessive investment beyond an optimal threshold leads to diminishing returns and  potential negative impacts. This critical finding underscores the paramount importance of care⁃ fully optimizing DT intensity and strategically managing digital investment portfolios. Second, the research establishes that innovation capability serves as a significant partial mediator in this  relationship, operating through three distinct pathways: ①R&D investment functions as the fun⁃ damental material foundation for innovation activities, effectively transmitting the positive effects  of DT. ②In the context of ambidextrous innovation, the analysis shows that radical innovation  demonstrates greater responsiveness to DT initiatives, while incremental innovation contributes  more substantially to short-term performance improvements. ③Within the domain of green inno⁃ vation, collaborative efforts among enterprises prove substantially more effective than indepen⁃ dent initiatives in generating performance enhancements. Third, heterogeneity analysis reveals  two findings: ① state-owned enterprises exhibit a stronger inverted U-curve due to their re⁃ source and policy advantages; ②large enterprises achieve more significant performance gains  from DT compared to SMEs, primarily constrained by the latter's limited resources. The theoreti⁃ cal contributions of this study are twofold. First, it reveals the nonlinear impact of digital transfor⁃ mation on corporate performance, expanding the application of resource-based view and dy⁃ namic capability theory in digital contexts. Second, by deconstructing innovation capabilities  through multidimensional analysis, it establishes a theoretical framework of "digital  transformation-innovation capability-corporate performance", offering a fresh perspective for un⁃ derstanding value creation mechanisms in digitalization. Practically, the research recommends  that enterprises formulate scientific digital transformation strategies to avoid blind investments  while focusing on synergistic enhancement of innovation capabilities, particularly through opti⁃ mizing resource allocation via green innovation and dual innovation collaboration. Additionally, government agencies should implement differentiated policies tailored to enterprise characteris⁃ tics to facilitate deep integration between the digital economy and real economy. 

Key words: digital transformation; innovation capability; enterprise performance; inverted Ushaped relationship; manufacturing enterprises