How do firms’ performance shortfalls affect digital transformation? The role of peer experience and persistent underperformance

Drawing on the behavioral theory of the firm (BTOF) and organizational learning theory, this study investigates the impact of performance shortfalls on digital transformation under the background of the flourishing of the digital economy. Using a dataset of Chinese listed firms from 2009 to 2021, our results show that firms’ financial performance shortfalls drive digital transformation. From the perspective of vicarious learning, the successful experience of peers in a similar difficulty (underperformance) and the successful experience of peers in an advantageous condition (outperformance) strengthens the positive impact of focal firms’ underperformance on digital transformation. Finally, these positive moderating effects are more pronounced in focal firms with persistent underperformance. This study contributes to the trigger and how of firms’ digital transformation and extends BTOF by demonstrating the positive relationship between performance shortfalls and digital transformation alongside emphasizing the importance of various peer experience and their interactions with persistent underperformance to identify their boundary.