The digital leap: assessing the impact of digitalisation on firm valuation & performance in India

Abstract

This study explores the impact of digital adoption on firm valuation and performance in the Indian context. We measure digitalisation through textual analysis of annual reports for firms listed on the NIFTY500 index. Our findings reveal that digital adoption has grown dramatically among these firms from FY2014 to FY2023. Based on a panel two-way fixed effects model, we find that digital adoption is associated with higher firm valuation. However, there is no immediate effect of digitalisation on firm performance in the first-year post adoption. The tangible benefits of digitalisation, in terms of performance enhancement, become apparent from the second year onwards. Additionally, our research delves into the catalysts driving digitalisation in India, uncovering a notable surge in digital adoption following the introduction of UPI and the outbreak of the COVID-19 pandemic. Lastly, our analysis suggests that digitalisation has played a crucial role in helping firms mitigate the negative impacts of the pandemic on valuation. Overall, our research provides insights that are essential for business leaders and policymakers to effectively navigate the complexities of digital integration within firms.