When Does Digital Transformation Pay Off Under Customer Dependence? Evidence from Chinese A-Share Listed Firms

Drawing on information asymmetry theory and the dynamic capabilities perspective, this study examines whether digital transformation improves firm performance and whether it attenuates the performance penalty associated with customer concentration. Using 18,542 firm-year observations for Chinese A-share non-financial listed firms during 2019–2024, we construct a digital transformation indicator from annual-report text and measure customer concentration by the sales share of the top five customers. The results show that digital transformation is positively associated with financial performance, whereas customer concentration is negatively associated with performance on average. More importantly, the interaction between digital transformation and customer concentration is positive and statistically significant, indicating that digital transformation mitigates the adverse performance implications of heavy dependence on major customers. Additional analyses provide supportive evidence that lower financing constraints are one pathway through which digital transformation is associated with better performance, and that stronger market competition amplifies the positive digital transformation-performance relationship. These findings remain robust when we replace the performance measure, lag explanatory variables, exclude pandemic-period observations, include firm fixed effects, and use instrumental-variable estimation. By bringing customer dependence into the analysis of digital transformation, the paper clarifies a relational boundary condition of digital value creation and shows that the value of digitalization depends not only on internal capability development but also on the structure of firms' external exchange relationships. JEL Classification: G32; L25; L81; M10; O33