Does Good Wine Still Need Bush:Digital Transforma-tion Signals and Capital Market Valuation in Manufac-turing Firms
Digital transformation of manufacturing firms in China is a significant research topic at present,as digital transformation has be-come a mandatory course for the manufacturing industry.Digitization and intelligence are the main pathways for the transformation and up-grading of China's manufacturing industry.However,those manufac-turing firms face many challenges during the transformation and up-grading process,such as resource constraints and long-time under-val-uation in the capital market.The process of digital transformation itself also entails uncertainties and risks for firms.Chinese manufacturing firms primarily rely on bank financing to sustain their development,while the capital market plays a relatively limited role in resource allo-cation.Therefore,effectively conveying the signals of digital transfor-mation,enhancing investor perception,and improving capital market pricing and valuation have become important for manufacturing firms.Existing literature primarily explores the impacts of digitalization on firm innovation,internal governance,and operation efficiency from the internal perspective,emphasizing the positive effects of digital transformation.However,research on the external capital market's re-sponse to digital transformation remains insufficient,thus demanding more research on digital transformation from the external perspective.Specific signals play a crucial role in capital market valuation,and in-formation disclosure by firms in certain areas can alleviate information asymmetry in the capital market,helping to establish corporate reputa-tion and legitimacy.Therefore,we need to know manufacturing firms'disclosure of digital transformation can increase or decrease their capital market valuation.Considering investor and are the key actors in the capital market,we also need to know whether and how these key actors'attention influences the relationship of digital transformation disclosure and capital market valuation.According to the signaling theory,signalers often make intentional effort in communicating their positive imperceptible qualities,and the effectiveness of a signal is affected by the signaling environment.Meanwhile,attention is a kind of scarce resource,as signal receivers have limited attention on the stocks in capital market.Drawing upon the signaling theory and the limited attention theory,this paper inves-tigates the relationship between digital transformation disclosure of manufacturing firms and their capital market valuation,and further the moderating effects of investor attention and media coverage on such a relationship.Data of the listed manufacturing firms in China from 2012 to 2019 were collected and the fixed-effects regressions were adopted for analysis to validate the signaling effects of digital transformation disclosure as well as the enhancing effects from the external attentions.The results show that the digital transformation disclosure of manu-facturing firms,especially the information about new digital technol-ogies enabled digital transformation,can significantly improve their valuation on the capital market.Investor attention further strengthens the positive relationship between these firms'digital transformation disclosure and capital market valuation.Media coverage and investor attention have a multiplier effect,thus jointly enhancing the positive signaling effects of digital transformation information released by man-ufacturing firms.The results further demonstrate that the positive sig-naling effect of manufacturing firms mainly help those firms from un-dervaluation toward normal valuation,while not pushing the firms into overvaluation.But the investor attention and media coverage still can play the multiple interaction effect to make the firms overvalued.All in all,this paper reveals the complex relationships of firms,investors and media for influencing the capital market valuation of manufacturing firms in China.The contributions of this paper are as follows.First,this paper extends the value representation of digital transformation to external capital markets,revealing how digital transformation disclosure enhances valuation in capital markets from the perspective of signaling theory.It extends the nomological network of the research on the value of digital transformation for firms.Second,this paper enriches and deepens sig-naling theory by incorporating limited attention theory and agenda-set-ting theory into the signaling theory.It shows that investor attention and media coverage have a multiplier effect on the signaling effect of digital transformation.Furthermore,this paper provides new evidence for the role of media in signal transmission,indicating that high media coverage can intervene investor attention and amplify the signaling effect of digital transformation in capital market valuation,thereby adding value to both signaling theory and agenda-setting theory.This paper also entails managerial implications on utilizing the capital mar-ket for promoting the transformation and upgrading of manufacturing firms.Manufacturing firms should pay attention to their digital trans-formation disclosure tactics as well as media communication by setting up effective agenda.
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