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The digital dilemma: Corporate digital transformation and default risk

Author

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  • Wu, Kai
  • Lu, Yufei

Abstract

This study investigates the association between corporate digital transformation and default risk for a sample of Chinese-listed firms from 2009 to 2022. We find a robust positive association between digital transformation and corporate default risk. Further tests reveal the destabilizing impact of digital adoption strengthens under greater competition, human capital intensity, shareholder expropriation, and weak monitoring. The additional analysis points to resource misallocation and managerial manipulations as two potential channels propagating distress. We show that digital transformation correlates with escalated asset impairments and financial frauds. Our study provides evidence that digital transformation strategies entail underappreciated risks to financial stability.

Suggested Citation

  • Wu, Kai & Lu, Yufei, 2025. "The digital dilemma: Corporate digital transformation and default risk," Journal of Financial Stability, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finsta:v:77:y:2025:i:c:s1572308925000221
    DOI: 10.1016/j.jfs.2025.101393
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    More about this item

    Keywords

    Corporate default risk; Financial stability; Digital transformation; Technology strategy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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