Digital transformation and total factor productivity in insurance companies: a catalyst or inhibitor?

Using data on 76 Chinese insurance companies from 2011 to 2020, this study investigates the impact of digital transformation (DT) on total factor productivity (TFP). We use the latent Dirichlet allocation (LDA) method to quantify the DT index within sample firms. Our analysis reveals a U-shaped relationship between the DT index and TFP, suggesting that insurance companies experience an initial decline in TFP at low levels of DT, followed by an eventual increase as the benefits of DT are realized. We also find the DT of most insurance companies is at the initial stage and they suffer poor efficiency. Our findings appear to be robust with respect to alternative reference documents, instrumental variable analysis, number of topics, and various subsamples. Furthermore, we identify and find three channels (management expenses, financial costs, and intangible assets) are statistically significant.