A matter of resources: how sustainability interacts with digitalization and financial performance

“What you measure is what you get” (Kaplan and Norton, 1992). During recent years (Kotarba, 2017) and especially since the pandemic crisis, the digitization of organizations and their business models is a trend that is redefining the global economy, so much so that scholars and practitioners have turned their attention to this process, to assess its signifi-cance (Cagle, 2020). However, the topic is complex and articulated to evaluate. The first challenge is how to assess and quantify the level of digitization of an organization (Ko-tarba, 2017), there are two ways in which digitization is measured: through metrics (Ca-gle, 2020) or through qualitative business analysis (Thordsen et al., 2020; Yu et al.,2021). Digitization is a process that affects different aspects inside and outside each organization (Kraus et al., 2019), therefore in practice assessing the level of digitization refers to prox-ies that are difficult and complex to validate for researchers, because these are often not objective (Ritter and Pedersen, 2020; Diller et al.,2020; Yu et al., 2021). In general, it is possible to state that empirical evidence and studies have shown a positive effect of digi-talization strategies on financial performance (Westerman et al., 2012; Alsufyani and Gill, 2022). However, other studies observed the digitization paradox, like what happens with sustainability, whereby companies that invest more in digitization strategies have negative returns (Gebauer et al., 2020). The process of digitation of an organisation, often wrapped up in the term Industry 4.0, is fuelled by the goal of achieving greater performance and building important competitive advantages for business survival and growth (Peppard, 2016). Preview studies show im-provements as a result of digitization practices in terms of: (i) revenue generation, such as new customers, new sales, higher cross-selling ratio and lower churn ; (ii) cost improve-ment, for example automated processes, straight-through processing, shorter processing time; (iii) and better risk management, like improved scoring through fewer operational problems, and advanced risk modelling (Kotarba, 2017; Rutkowsky, et al., 2015; Desmet, et al, 2015). However, companies that adopt digitization strategies run into several prob-lems mainly related to: (i) prioritizing investments, because needs often exceed available funds, (ii) and understanding the real value created by the digital transition, in terms of measurable results and business transparency (Fernández-Olano, et al., 2015; Gottlieb and Willmott, 2014). It is therefore central to the ex-ante and ex-post implementation of digital solutions to define metrics to assess the benefits and ensure their proper measurement. The rapid development and implementation of digitization has a significant impact on the environment, but it is still unclear whether digitization has a positive or negative impact on sustainability (Chen et al., 2020). Existing literature, through many studies, has demon-strated a positive impact of sustainability on financial performance (Dalal&Thaker, 2019; Nirino et al., 2019), these studies confirmed that companies that invest in sustainability have more costs, but also greater reputational and economic returns. To understand how this mechanism works, we can adopt the Penrose perspective of the growth of the firm. The theory states how better a firm’s performance could be explained by the capacity to effectively combine the disposable resources Nason and Wiklund, 2018. Some authors, in line with this statement, have adopted this perspective: for exam-ple, Tang et al., (2012) have considered CSR as a set of resources and, Teng et al., (2022) states how digitalization is a set of resources disposed by the firm to sustain the perfor-mance. In this context it becomes interesting to understand the role of sustainability, considered a set of resources, and embracing Penrose’s perspective, we decided to consider that finan-cial performance is related to the combination of a firm’s resources. More specifically, we assume that the impact of digitalization practice on financial performance is generally posi-tive, and that sustainable practice increases their effects, mediating between them. Our dig-italization variable comes from digitalization proxies defined by Cagle (2020), such as: reaching operational excellence, production capacity improvement, improving workforce efficiency, innovation/tech infrastructure and achieving expense efficiency. To test the hypotheses, we collected data from 247 companies in the STOXX Global In-dustry 4.0 index, consisting of companies that generate revenue from overall technological segments such as cybersecurity, virtual reality or the Internet of Things that lead towards an autonomous machine-driven economic model, in which machines interact with each other without human intervention, for a time frame of 5 financial years (2017-2021). To broaden the contexts of analysis of the relationship between digitalization and financial performance, we have analyzed this relationship in digitalized and non-digitalized compa-nies. To better understand the effect of digitalization on financial performance, we per-formed the same analysis on the companies included in the STOXX Global 1800 index which contained the best 600 European, 600 American and 600 Asia/Pacific listed com-panies. To demonstrate the impact of digitalization on financial performance via CSR disclosure, we used the panel regression technique. The threat of endogeneity has been eradicated through 2SLS instrumental regression. We use the proxies defined by Cagle (2020) as in-strumental variables of digitalization. The preliminary results obtained showed that companies which adopt digitalization prac-tices have better financial performance, such as a lower cost of capital, better ROA and Tobin’s Q, even if they sustain more costs, also enhanced by the mediator role of sustain-ability. Because of the preliminary results obtained, it is possible to highlight many contri-butions. First, this research expands the empirical evidence on the debate on the impact of digitalization on financial performance. Our analysis focuses on a selected digitalized companies defining the potential positive effects that digital strategies have on them, also enhanced by sustainability practices. The second contribution, on the other hand, focuses specifically on digitalization variables. In fact, most previous studies use surveys to assess the level of digitization, our work lays the basis to give more objectivity and solidity to a phenomenon crucial to succeeding and growing in today's economic environment, using specific dimensions of the profit and loss statement, appropriately aggregated, as proxies of digitization.