Uncovering digital maturity and financial performance relationship in the service sectors

Abstract

This study aims to explore how digital maturity level (DML) affects financial performance (FP) in the service sector firms listed on Borsa Istanbul in Türkiye. Using panel data of 59 service companies for the years 2016–2022, this study employs a text mining approach to calculate DML of the firms from their annual reports and uses panel regression analysis to examine the interplay between DML and FP. The results indicate that there is a U-shaped relationship between DML and FP of service sector firms. Companies that have a greater orientation towards digitalization face a decreasing FP in the short term but get increasing financial benefits in the long run. However, this relationship varies across the sectors of information, communication and publishing activities, construction and public works and transportation and storage. The findings provide valuable insights for companies to structure right digitalization strategies to ensure sustainable financial gains.