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Non-tech Chinese firms that digitalize tend to push decision-making down to subsidiaries, especially when diversified or facing uncertainty; this decentralisation is associated with measurable productivity gains.

Does Organizational Power Allocation Respond to Technological Shift in the Digital Age? Empirical Evidence From Chinese Listed Firms

Danyang Chen, Lili Jiu, Yuanyuan Liu · Fetched April 10, 2026 · Corporate Governance: An International Review

semantic_scholar correlational medium evidence 7/10 relevance DOI Source

Using 2009–2020 data on Chinese listed firms, higher firm-level digitalization is associated with decentralizing decision-making to subsidiaries, with stronger effects in diversified firms and uncertain environments, and this shift is linked to improved firm productivity.

This study examines how organizational structures adapt to digital technologies in the digital age. Many nontechnology firms are undergoing transformations driven by data‐driven digital technologies. However, their existing structures often fail to accommodate these changes, thus prompting a need for strategic adaptation to integrate these technologies into business operations. Specifically, we propose that digitalization facilitates decentralized power in governance structures. To better capture how digitalization influences governance structure, we focus on the adoption of digital technologies and apply multiple measures of digitalization to examine its impact on the empowerment of subsidiaries by parent firms. Using public data from China's listed companies between 2009 and 2020, we find that firms with higher levels of digitalization tend to decentralize decision‐making authority to their subsidiaries. Moderation tests indicate that this effect is more pronounced for companies with greater business diversification and those operating in environments of higher uncertainty, highlighting the role of digital technologies in managing task uncertainty and governance costs. Further analysis suggests that this shift in power allocation significantly enhances firm productivity. This study contributes to the growing literature on corporate digitalization by shifting the focus from antecedents and production efficiency to proactive adaptation strategies. By exploring changes in internal power structures and their financial consequences, we offer insights into how digital technologies can drive competitive advantage within firms. Additionally, we contribute to organizational structure theory by positing that digital technologies act as an external contingency for nontech firms, requiring structural decentralization to align with technological shifts. Our findings have implications for both professional managers and shareholders. For nontech firms seeking to enhance operational efficiency through digitalization, they should consider optimizing internal power structures in response to technological shifts, which can improve firm performance.

Summary

Main Finding

Firms that adopt digital technologies tend to decentralize decision-making authority to their subsidiaries; this reallocation of power is stronger in more diversified firms and in higher-uncertainty environments, and the decentralization is associated with higher firm productivity.

Key Points

Digitalization is linked to greater empowerment of subsidiaries (decentralized governance) in nontechnology firms.
The effect is robust across multiple measures of firm digitalization.
Moderation results:
- Stronger decentralization effects for firms with greater business diversification.
- Stronger effects in environments with higher uncertainty.
Mechanisms: digital technologies help manage task uncertainty and lower governance costs, making decentralized decision rights more effective.
Financial consequence: shifting power to subsidiaries materially improves firm productivity.
Contribution: reframes corporate digitalization literature toward proactive internal adaptation (governance and power allocation) and treats digital technologies as an external contingency requiring structural change.

Data & Methods

Sample: publicly listed Chinese firms, 2009–2020.
Key variables:
- Independent: multiple measures of firm digitalization (text-based indexes and other firm-level digital adoption indicators, as described).
- Dependent: measures of subsidiary empowerment / decentralization of decision-making from parent to subsidiaries.
- Outcomes: firm productivity.
Empirical approach: panel regression analyses with moderation tests to examine heterogeneity by diversification and environmental uncertainty; additional analyses linking decentralization to productivity gains.
Identification/robustness: uses several digitalization measures and heterogeneity tests to validate the relationship; as an observational study, causal interpretation may be limited by potential endogeneity (authors mitigate this with robustness checks but causal claims should be interpreted cautiously).

Implications for AI Economics

Theory: digital technologies should be modeled not only as productivity inputs but also as external contingencies that alter optimal governance and the allocation of decision rights inside firms.
Firm strategy: managers in nontech firms should consider organizational redesign (decentralization) alongside digital investments—especially when firms are diversified or face high task uncertainty—to realize productivity gains.
Investors and corporate governance: shifts toward subsidiary empowerment can be a signal of productive digital adaptation; governance metrics should incorporate internal power reallocation when assessing digitalization outcomes.
Policy and ecosystem: policies promoting digital adoption can have second-order effects on organizational forms and efficiency; attention to firm-level governance capacity is important for realizing broader economic gains from digitalization.
Research directions: integrate governance responses into models of digital adoption; pursue stronger causal designs (instruments, quasi-experiments) and cross-country comparisons to test generalizability across institutional settings.

Assessment

Paper Typecorrelational Evidence Strengthmedium — Large panel of Chinese listed firms over 2009–2020, multiple measures of digitalization, and robustness/moderation analyses lend credibility to the association; however, the study appears to lack a plausibly exogenous source of variation in digitalization (no clear instrument or natural experiment), leaving open concerns about reverse causality and omitted-variable bias for causal claims. Methods Rigormedium — Methodologically solid in using longitudinal public data, multiple operationalizations of digitalization, and heterogeneity/moderation tests; but methods appear not to fully address endogeneity (e.g., limited discussion of instruments, difference-in-differences with an exogenous shock, or other strong identification strategies), and measurement error in digitalization and governance variables may persist. SampleFirm-year panel of Chinese publicly listed (A-share) non-technology firms from 2009 to 2020, using public financial and corporate governance data; the sample excludes pure tech firms (focus on nontech firms undergoing digitalization) and constructs multiple digitalization measures (details unspecified). Themesorg_design productivity adoption IdentificationObservational panel analysis using firm-year variation in multiple measures of digitalization to predict changes in governance (subsidiary empowerment); includes standard controls, robustness checks, moderation tests (diversification, environmental uncertainty), and likely firm and year fixed effects, but no clearly stated exogenous shock or instrumental variable to achieve causal identification. GeneralizabilityChina-specific institutional and corporate governance context may limit applicability to other countries, Restricted to publicly listed (typically larger) firms; findings may not generalize to private SMEs, Focus on non-technology firms — results may differ for pure tech firms or platform companies, Data up to 2020; rapid developments in AI post-2020 (e.g., generative AI) may change dynamics, Potential measurement error in digitalization proxies and governance indicators could vary across industries

Claims (7)

Claim	Direction	Confidence	Outcome	Details
Firms with higher levels of digitalization tend to decentralize decision‑making authority to their subsidiaries. Task Allocation	positive	high	empowerment of subsidiaries (decision‑making authority)	0.3
The decentralizing effect of digitalization is more pronounced for companies with greater business diversification. Task Allocation	positive	high	degree of decentralization / empowerment of subsidiaries	0.3
The decentralizing effect of digitalization is stronger for firms operating in environments of higher uncertainty. Task Allocation	positive	high	degree of decentralization / empowerment of subsidiaries	0.3
Shifting power allocation (decentralization to subsidiaries) driven by digitalization significantly enhances firm productivity. Firm Productivity	positive	high	firm productivity	0.3
Many non‑technology firms' existing organizational structures fail to accommodate data‑driven digital technologies, creating a need for strategic adaptation to integrate these technologies into business operations. Organizational Efficiency	positive	high	need for strategic adaptation / fit between structure and technology	0.15
Digital technologies operate as an external contingency for non‑tech firms, requiring structural decentralization to align organizational structure with technological shifts. Task Allocation	positive	high	organizational structure (centralization vs decentralization)	0.05
For non‑tech firms seeking to enhance operational efficiency through digitalization, optimizing internal power structures in response to technological shifts can improve firm performance. Firm Productivity	positive	high	firm performance / operational efficiency	0.3