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Digital transformation and earnings opacity:Evidence from China

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  • Liu, Wanli

Abstract

This study finds that digital transformation has a significant negative impact on firms’ earnings aggressiveness, earnings smoothing and earnings opacity mainly by strengthening constraints on management’s power and private information. Further analysis reveals that in firms operating internationally, the top ten audited firms, and non-state-owned firms, the role of digital transformation in reducing earnings opacity is significant and greater, while in non-top ten audited companies, the main effect is not significant, and digital transformation can only reduce the earnings smoothing for state-owned firms. This study hence suggests an important new determinant of earnings opacity.

Suggested Citation

  • Liu, Wanli, 2024. "Digital transformation and earnings opacity:Evidence from China," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324010547
    DOI: 10.1016/j.frl.2024.106024
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    References listed on IDEAS

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    1. Yang Bao & Bin Ke & Bin Li & Y. Julia Yu & Jie Zhang, 2020. "Detecting Accounting Fraud in Publicly Traded U.S. Firms Using a Machine Learning Approach," Journal of Accounting Research, Wiley Blackwell, vol. 58(1), pages 199-235, March.
    2. Jeremy Bertomeu & Edwige Cheynel & Eric Floyd & Wenqiang Pan, 2021. "Using machine learning to detect misstatements," Review of Accounting Studies, Springer, vol. 26(2), pages 468-519, June.
    3. Bhattacharya, Utpal & Daouk, Hazem & Welker, Michael, 2003. "The World Price of Earnings Opacity," Working Papers 127185, Cornell University, Department of Applied Economics and Management.
    4. Ball, Ray & Robin, Ashok & Wu, Joanna Shuang, 2003. "Incentives versus standards: properties of accounting income in four East Asian countries," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 235-270, December.
    5. Kexing Ding & Baruch Lev & Xuan Peng & Ting Sun & Miklos A. Vasarhelyi, 2020. "Machine learning improves accounting estimates: evidence from insurance payments," Review of Accounting Studies, Springer, vol. 25(3), pages 1098-1134, September.
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    Cited by:

    1. Xu, Zhan & Wang, Solomon & Ye, Junchen, 2024. "The effect of digitization on corporate fraud detection evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PB).

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    More about this item

    Keywords

    Digital transformation; Earnings opacity; Earnings aggressiveness; Earnings smoothing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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