To be or not to be digital? The impact of peer firms’ negative digitalization news

Purpose This study investigates the spillover effects of negative digitalization news about peer firms on the digital strategies of focal firms. Drawing on institutional theory and threat rigidity theory, we explore how these news articles influence discrepancies related to digitalization between the focal firm’s communication (digitalization disclosures) and practice (digital innovation). Design/methodology/approach Using a sample of Chinese A-share listed manufacturing firms from 2012 to 2019, we analyze the impact of peer firms’ negative digitalization news on the focal firms’ digitalization disclosures and digital innovation. Large language models (LLMs) were applied for news sentiment classification. Findings Our results show that negative digitalization news from peer firms drives focal firms to increase their digitalization disclosures, consistent with institutional theory, while simultaneously reducing digital innovation, in line with threat rigidity theory. Furthermore, firms with higher R&D intensity are more likely to enhance digitalization disclosures and less likely to curtail digital innovation in response to peer firms’ negative digitalization news compared to firms with lower R&D intensity. Originality/value By integrating institutional theory and threat rigidity theory, this study reveals how firms navigate conflicting pressures from legitimacy concerns and risk aversion in response to peer firms’ negative digitalization news. Additionally, we leverage LLMs to refine news sentiment classification, offering new methodological insights.