Exploring the financial impact of digital transformation: A comprehensive analysis on firms

This study aims for an in-depth exploration into the effects of digital transformation on firms’ financial performance and how this impact can be measured. The research employs a two-stage method to evaluate firms’ digitalization processes. In the first stage, keywords related to digitalization are extracted from annual reports through text mining, and digital transformation strategies in five different sectors are analyzed. Based on these analyses, the return of digitalization (ROD) ratio is developed to assess the effects of digital transformation. In the second stage, a panel data analysis is conducted to examine the impact of digitalization and the ROD ratio on a firm's performance. The research findings clearly indicate that digital transformation generates positive effects on firms’ financial performance. It also appears that digitalization provides a competitive advantage, particularly in areas such as operational efficiency and brand value. Firms with a high ROD ratio, which can be used as an indicator of digital transformation investments, demonstrate stronger financial performance. The ROD ratio has emerged as a critical indicator that effectively measures the financial outcomes of digital transformation.