I come to know it works as Chaotropic agent and may be due to that disrupt the hydrogen bonding network between water molecules as well as have effect on the stability of the native state of other molecules in the solution, mainly macromolecules (proteins, nucleic acids) by weakening the hydrophobic effect.
See attached instruction from a company. On page 3, it briefly describes the function of LiAc in yeast transformation. For details, might need to find other studies.