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Digital transformation, life cycle and internal control effectiveness: Evidence from China

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  • Zhao, Tianyu
  • Yan, Na
  • Ji, Liya

Abstract

Based on corporate life cycle theory, this paper investigates the impact of digital transformation on the effectiveness of internal control by analyzing data from Chinese listed companies from 2007–2021. The empirical results show that digital transformation can improve internal control effectiveness by alleviating information asymmetry and reducing agency costs, and that this effect is significant to firms in growth and maturity stage, but not firms in decline stage. In addition, digital transformation has a more significant effect on the effectiveness of internal control in high-tech enterprises and manufacturing firms. This paper provides insights into the impact of digital transformation on corporate governance and have policy implications for promoting smooth capital market operation.

Suggested Citation

  • Zhao, Tianyu & Yan, Na & Ji, Liya, 2023. "Digital transformation, life cycle and internal control effectiveness: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323005950
    DOI: 10.1016/j.frl.2023.104223
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    References listed on IDEAS

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    1. Chalmers, Keryn & Hay, David & Khlif, Hichem, 2019. "Internal control in accounting research: A review," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 80-103.
    2. repec:eme:jalpps:j.acclit.2018.03.002 is not listed on IDEAS
    3. Chen, Yufeng & Xu, Jing, 2023. "Digital transformation and firm cost stickiness: Evidence from China," Finance Research Letters, Elsevier, vol. 52(C).
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    Cited by:

    1. Vu, Dung Anh & Van Nguyen, Thinh & Nhu, Quang Minh & Tran, Tuyen Quang, 2024. "Does increased digital transformation promote a firm's financial performance? New insights from the quantile approach," Finance Research Letters, Elsevier, vol. 64(C).
    2. Zhao, Zhihui & Liu, Wei & Ning, Yiyi & Yang, Shiyu, 2024. "Can China go green through digitalization? Evidence from China's listed firms," International Review of Economics & Finance, Elsevier, vol. 94(C).
    3. Sun, Yahui & Huang, Yating & Feng, Qindi, 2024. "Internal control and stock liquidity," Finance Research Letters, Elsevier, vol. 66(C).
    4. Chen, Meian & Zhao, Ke & Jin, Wei, 2024. "Corporate digital transformation and tax avoidance: evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    5. Jingzhuo Yu & Yong-Sik Hwang, 2024. "The Interaction Effects of Board Independence and Digital Transformation on Environmental, Social, and Governance Performance: Complementary or Substitutive?," Sustainability, MDPI, vol. 16(20), pages 1-26, October.
    6. Yuan Feng & Changfei Nie, 2024. "Digital technology innovation and corporate environmental, social, and governance performance: Evidence from a sample of listed firms in China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3836-3854, September.
    7. Songling Yang & Yafei Tai & Jianing Liu, 2024. "Mechanism Analysis and Path Study of Digital Transformation on Corporate Governance: Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 16(21), pages 1-24, October.
    8. Li, Zongru & Zhang, Xiaohan & Tao, Zhe & Wang, Binbin, 2024. "Enterprise digital transformation and supply chain management," Finance Research Letters, Elsevier, vol. 60(C).

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