On the Impact of Digital Transformation on Firm Profitability: Evidence from Heterogeneous Industries

Uncovering the heterogeneous impact of digital transformation on corporate profitability across industries is of critical importance, as it enables enterprises to avoid misguided transformation initiatives and assists governments in designing targeted industrial policies. Current literature has largely neglected the moderating role of industry-specific characteristics, limiting its capacity to inform context-specific strategies. To address this gap, this study constructs a firm-level digital transformation index using textual analysis of annual reports from A-share listed companies between 2010 and 2023, and employs a two-way fixed effects model for empirical validation. The results demonstrate that although digital transformation significantly improves the average return on assets, its effects are highly sector-dependent: it generates substantial profitability gains in the energy and information technology sectors, yet yields only marginal or even negative returns in both discretionary and consumer staples industries. These findings remain robust after controlling for endogeneity through instrumental variable estimation and undergoing a battery of robustness checks, including alternative variable specifications and sample period adjustments. This research underscores that digital transformation does not uniformly enhance profitability-its efficacy is moderated by industry characteristics-and offers empirical support for enterprises to eschew one-size-fits-all approaches and adopt context-aware transformation strategies.