Tunneling motivation or legitimacy motivation? The impact of digital transformation on controlling shareholders' share pledging

With the profound integration of technology and finance, the governance impact of digital transformation has emerged as a prominent discussion in the realm of corporate governance. This study seeks to investigate whether corporate digital transformation, supported by digital governance models, influences controlling shareholders’ share pledging. Leveraging data from A-share listed companies spanning 2010 to 2021, we explore the effects of corporate digital transformation on controlling shareholders' share pledging from the perspectives of tunneling and legitimacy motivations. The findings reveal that corporate digital transformation acts as a deterrent to controlling shareholders' share pledging. Particularly, in cases where companies lack vertical integration in top management, encounter significant financing constraints, or operate in regions with lower levels of rule of law, the suppressive impact of digital transformation on controlling shareholders' share pledging is more pronounced. At a micro level, corporate digital transformation diminishes the tunneling motivation of controlling shareholders and curbs their equity pledge actions through mechanisms such as executive failure tolerance and external supervision. Furthermore, driven by legitimacy motives, it restrains controlling shareholders’ share pledging by enhancing short-term financing capabilities through the avenue of digital transformation. This study contributes to a deeper comprehension of how corporate digitalization bolsters corporate governance, offering novel governance insights to advance the high-quality evolution of the capital market.