The Impact of Digital Economy Development on Chinese Firms Performance

Abstract

This study examines the dynamic and asymmetric effects of digital economy development on firm performance in China using annual time-series data spanning 2002 to 2024. Internet penetration rate is adopted as the primary proxy for digital economy development, while the aggregate Return on Assets (ROA) of Chinese A-share listed companies serves as the measure of firm performance. Employing the Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) frameworks, this study investigates both the long-run equilibrium relationship and short-run dynamic adjustment between these variables. The ARDL bounds test confirms the existence of a stable cointegrating relationship at the 1% significance level. The estimated long-run coefficient of digital economy development is 1.821, indicating that a 1% increase in internet penetration rate is associated with an approximate 0.018 percentage-point increase in aggregate firm ROA. The short-run coefficient (8.232) substantially exceeds the long-run estimate, demonstrating that the immediate impact of digital economy shocks is considerably more pronounced than the equilibrium effect. The error correction term coefficient (−0.800) is statistically significant, implying that approximately 80% of any short-run deviation is corrected within one year. The NARDL exploratory analysis does not confirm statistically significant asymmetric effects, reflecting the trajectory of uninterrupted digital expansion in China during the sample period. Robustness checks using an alternative proxy confirm the stability of the core findings. These results offer both theoretical insights and practical implications for digital infrastructure policy and corporate digital transformation strategies in emerging economies.