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The research on non-linear relationship between enterprise digital transformation and stock price crash risk

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  • Ai, Yongfang
  • Chi, Zheng
  • Sun, Guanglin
  • Zhou, Han
  • Kong, Tao

Abstract

This paper uses data from Chinese A-share listed enterprises to examine digital transformation’s impact and intrinsic mechanisms on the risk of stock price collapse. This paper finds that the impact of digital transformation on the risk of stock price collapse follows an inverted U-shaped trend characterized by initial exacerbation followed by subsequent suppression. Furthermore, we find that as most Chinese enterprises are still positioned at the left end of the inverted U-shaped curve in terms of their level of digital transformation, the impact of digital transformation on the risk of the stock price collapse is mainly characterized by exacerbation. Moreover, we discover that digital transformation influences the risk of stock price collapse by increasing agency costs and fostering managerial overconfidence. Lastly, the heterogeneity analysis results indicate that digital transformation’s impact on the risk of stock price collapse varies among different types of enterprises. The exacerbation effect of the former on the latter is primarily observed in small-sized and non-high-tech enterprises. Additionally, as the digital transformation progresses, large-sized enterprises and high-tech enterprises can benefit more rapidly from its positive empowering effects.

Suggested Citation

  • Ai, Yongfang & Chi, Zheng & Sun, Guanglin & Zhou, Han & Kong, Tao, 2023. "The research on non-linear relationship between enterprise digital transformation and stock price crash risk," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823001079
    DOI: 10.1016/j.najef.2023.101984
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    References listed on IDEAS

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    1. Jo Thori Lind & Halvor Mehlum, 2010. "With or Without U? The Appropriate Test for a U‐Shaped Relationship," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 109-118, February.
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    Cited by:

    1. Zhao, Zeru, 2024. "Digital Transformation and Enterprise Risk-Taking," Finance Research Letters, Elsevier, vol. 62(PA).
    2. Nie, Jun & Jian, Xin & Xu, Juanjuan & Xu, Nuo & Jiang, Tangyang & Yu, Yang, 2024. "The effect of corporate social responsibility practices on digital transformation in China: A resource-based view," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1-15.
    3. Bai, Zonghang & Ban, Yuanhao & Hu, Haifeng, 2024. "Banking competition and digital transformation," Finance Research Letters, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Digital transformation; Stock price crash; Inverse U-shape; Agency cost; Overconfidence;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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