Abstract

This study investigates whether investors assign more value to actions or words when evaluating firms’ digitalization efforts, with a focus on publicly listed companies in emerging Chinese stock markets over the sample period from 2007 to 2021. We employ a text-based proxy – the frequency of digital-related keywords in annual reports – and a direct measure of digital investments. Our findings indicate that while the frequency of digital-related keywords (words) does not significantly impact firm value, digital investments (actions) are positively and significantly associated with Tobin’s Q. Robustness checks, using the two-stage least squares (2SLS) instrumental variable regression, Heckman two-step method, propensity score matching (PSM), firm-fixed effects, and difference-in-differences (DiD) analysis, strongly support the causal effects of digital investments on firm value. These results suggest that investors place higher value on firms’ actual digital investments over mere disclosures of digital efforts, reinforcing the principle that actions speak louder than words. Consequently, we recommend that corporate managers prioritize investments in digital intangible assets to enhance their firms’ market valuations.