Digital transformation and firms’ bargaining power: Evidence from China

Abstract

The escalating competition in the digital age has forced firms to increase their bargaining power. Given that firms are accelerating digital transformation (DT), clarifying the connection between DT and firms’ bargaining power remains to be determined. Therefore, this research, utilizing data from Chinese listed firms, demonstrates a positive association between digital transformation and firms’ bargaining power when dealing with suppliers and customers. After addressing endogeneity concerns and conducting alternative robustness checks, this result remains robust. Furthermore, mechanism analysis reveals that the positive connection is mediated by higher firms’ innovation capabilities, optimized human capital structures, and lower transaction costs. Moreover, this positive nexus is weaker among firms located upstream in the supply chain and those with lower competitiveness, and stronger when firms face high economic uncertainty. Overall, these findings theoretically contribute to Schumpeterian innovation and human capital theories and provide managerial suggestions for firms to enhance their bargaining power.