Unlocking innovation potential: the non-linear effect of digital transformation on firms’ innovation breadth

Innovation breadth is crucial for enhancing firms’ innovation potential and building competitive advantage. However, in an era where digital transformation, acting as a double-edged sword, fundamentally reconfigures innovation ecosystems, its precise impact on innovation breadth remains underexplored. Drawing on optimal distinctiveness theory, this study uses empirical data from Chinese A-share listed firms (2013-2022) to examine the link between digital transformation and innovation breadth. The findings reveal a non-linear, inverted U-shaped relationship, indicating that while digital transformation initially promotes innovation breadth, this positive effect diminishes, eventually turning negative at high implementation levels. The curvilinear pattern is particularly pronounced in non-state-owned firms, high-tech firms, and firms with low-to-medium market positions. Mechanically, digital transformation impacts innovation breadth through two concurrent channels: R&D intensity (internal capability development) and analyst attention (external pressure response). Knowledge spillover emerges as a critical boundary condition, attenuating the direct effect of digital transformation on innovation breadth. This spillover also weakens the indirect effect operating through R&D intensity, thereby confirming a moderated mediating pathway. The results of this study have theoretical and practical implications for navigating digitalization strategies to foster innovation potential.