Information Processing Capacity for Growth: The influence of environmental complexity and legal disputes on the relationship between digital transformation and supplier expansion through the lens of information processing theory

Abstract

This study examines how digital transformation (DT) influences the likelihood of supplier expansion among S&P 500 firms, and how this relationship is moderated by organisational environmental complexity and legal disputes. Building on Information Processing Theory (Galbraith, 1974; Tushman & Nadler, 1978) and the relational view (Dyer & Singh, 1998) as motivational rationale, this paper argues that DT improves organisation’s information processing capacity (IPC), driving it to manage informational demands from a broader supplier network. Using a panel dataset of 83 S&P 500 organisations observed from 2010 until 2023, the hypotheses are tested using fixed-effects logistic regression. Results indicate positive effect of DT on supplier expansion which loses significance once time foxed effects are included External complexity shows a direct negative effect on supplier expansion, but additional sub-period analysis reveals that both complexities shift from barriers in the early DT period (2010 – 2016) to positive boundary conditions in the mature DT stage (2017 – 2023), partially supporting hypothesised effect. Legal disputes, show no significant effect. Geographic diversity and DT operate as substitutive rather than complementary pathways to supplier expansion. Findings of this study extend IPT to the relational supply chain context, introducing IPC as the missing mechanism in the RV and reframe environmental complexity as a context-dependent boundary condition shaped by DT maturity. Overall, this study contributes a nuanced understanding of when and how DT enables supplier network growth