Abstract:    The innovation output of Chinese SMEs is far less than that of large enterprises, and how to enhance the innovation capacity of SMEs in the context of the era of digital economy has become an urgent issue for the theoretical and practical circles. Starting from the supply chain perspective, this paper explored the impact and mechanism of digital transformation of core enterprises on the innovation capacity of upstream and downstream SMEs based on the supply chain data of listed companies from 2007 to 2020. It was found in the study that (1) the digital transformation of core enterprises can significantly enhance the innovation capability of upstream and downstream SMEs, and the conclusion still holds after a series of robustness tests. (2) Mechanism tests proved that the digital transformation of core enterprises can generate three kinds of spillovers through the supply chain, namely financial spillovers, transformation spillovers and innovation spillovers, which affect the innovation level of upstream and downstream SMEs. (3) Heterogeneity analyses found out that core enterprises′ digital transformation promotes SMEs′ innovation capability more significantly when the SMEs are non-state-owned or high-tech enterprises. The findings of this paper will enrich the empirical evidence of supply chain spillovers and provide a new theoretical basis and operational ideas for SMEs to enhance their innovation capacity.

Key words: digital transformation, SME innovation, spillover effect of the supply chain