Can digital technology innovation enhance the corporate profitability?

Digital technology is driving a new wave of transformation, improving quality, efficiency, and business upgrading. Using data from A-share listed companies on the Shanghai and Shenzhen stock exchanges (2010–2022), this paper identifies digital patents through text analysis to measure digital innovation and employs regression models to examine its impact on corporate profitability. Key findings include: (1) Digital innovation significantly enhances profitability, a result robust across sensitivity tests. (2) The impact is stronger in highly competitive, private, high-tech, large, and eastern firms but weaker or negligible in smaller, state-owned, low-tech, and less competitive firms in central and western regions. (3) Mediation analysis shows that digital innovation boosts profitability by improving efficiency and scale, though cost-effectiveness is limited in early stages. (4) Moderation analysis suggests that stronger government and corporate governance further enhance its benefits. These insights offer a new perspective on digital technology’s role in profitability and inform policy decisions.