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Corporate digital transformation and idiosyncratic risk: Based on corporate governance perspective

Author

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  • Huang, Heshu
  • Wang, Caiting
  • Wang, Liukai
  • Yarovaya, Larisa

Abstract

This study examines the relationship between corporate digital transformation and idiosyncratic risk. We employ crawler technology to gather “digital transformation” characteristic words in annual reports, and innovatively construct a proxy variable for corporate digital transformation. Using 12,516 observations from 2941 listed companies in China across the period 2014 to 2020, we find that the relationship between corporate digital transformation and idiosyncratic risk presents as “U-shaped”. The results are still robust when we address the endogeneity concern, and use alternative measures of the dependent variable, further validate the U-shaped relationship as well as exclude special samples. The moderating effect of management shareholding and product market competition is further explored from internal and external corporate governance mechanisms, respectively. Results show that internal and external corporate governance mechanisms strengthen the relationship between digital transformation and idiosyncratic risk. In general, our research results enrich the study of corporate digital transformation and risk management, which gives some insight into corporate governance in the digital age.

Suggested Citation

  • Huang, Heshu & Wang, Caiting & Wang, Liukai & Yarovaya, Larisa, 2023. "Corporate digital transformation and idiosyncratic risk: Based on corporate governance perspective," Emerging Markets Review, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:ememar:v:56:y:2023:i:c:s156601412300050x
    DOI: 10.1016/j.ememar.2023.101045
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    Cited by:

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    2. Chen, Zhe & Cao, Yushan & Liao, Kaicheng, 2024. "How state-owned equity participation promotes the digital transformation of nonstate-owned enterprises: Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    3. Zhou, Bole & Ma, Lili & Yang, Shenghao, 2024. "Catering behaviors in corporate digitization disclosures: Identification and analyst forecast accuracy loss," Research in International Business and Finance, Elsevier, vol. 68(C).
    4. Xiu Jie Deng & Man Qing Yuan & Cai Yi Luo, 2024. "Corporate digital transformation, market competition, and the environmental performance—Microevidence from Chinese manufacturing," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3279-3298, May.
    5. Jiang, Yan & Wang, Jiaxin & Huang, Yibo, 2024. "Does religious atmosphere affect enterprise digital transformation? Evidence from China," Research in International Business and Finance, Elsevier, vol. 70(PB).

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    More about this item

    Keywords

    Digital transformation; Idiosyncratic risk; Corporate governance; Textual analysis;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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