Does Digitalization Promote Firm Growth? Evidence from China

Firm growth is a micro-level foundation of economic and social sustainable development. Simultaneously, the global proliferation of digitalization is increasingly evident, with numerous firms implementing digitalization to fulfil their diverse objectives. This prompts an inquiry into whether digitalization genuinely facilitates firm growth. In this study, we used Chinese A-share-listed companies from 2013 to 2022 as the research sample to empirically investigate the impact of digitalization on firm growth using a fixed-effects model. The findings indicate that digitalization currently exerts a significant negative effect on firm growth. This negative effect is more pronounced in large firms and manufacturing firms. In the process by which digitalization negatively affects firm growth, organizational inertia and strategic persistence are critical moderating factors. Specifically, an increase in organizational inertia exacerbates the negative impact of digitalization on firm growth, whereas an increase in strategic persistence mitigates this adverse effect on firm growth. The findings of this study enhance our understanding of digitalization and elucidate the contextual factors that influence its effect on firm growth. From a theoretical perspective, we explain the “digitalization paradox” observed at the firm growth level and partially correct the discrepancy between theory and practice. The conclusions also provide valuable insights for managers in implementing digitalization.