Digital transformation and firm performance: Evidence from ICT adoption, human capital, and financial development

Abstract

This study examines the impact of digital transformation on firm performance in Nigeria, focusing on the roles of ICT adoption, human capital, financial development, and institutional quality. Motivated by Nigeria's pursuit of a knowledge-driven economy amid persistent productivity challenges, the study employs Fully Modified Ordinary Least Squares, Dynamic Ordinary Least Squares, and Vector Error Correction Model to capture both long- and short-run shock impacts and causal relationships. Firm performance is proxied by labour productivity and value added, while ICT adoption, education expenditure, credit availability, trade openness, market size, and regulatory quality serve as explanatory variables. Results show that ICT adoption has a positive and statistically significant long-run effect on both performance measures, and that the interaction between ICT and human capital is positive, indicating complementarity between technology and skills. Regulatory quality supports performance, whereas trade openness and credit are not robust in the long-run regressions. Variance decomposition indicates that ICT shocks exert a persistent influence on performance. Long-run Granger causality runs from ICT to performance, suggesting that digital capability is a leading indicator of productivity gains. Policy implications emphasise expanding digital infrastructure alongside investments in skills and regulatory quality.