Firms' digitalization and stock price crash risk

Kangqi Jiang, Xinyi Du and Zhongfei Chen

International Review of Financial Analysis, 2022, vol. 82, issue C

Abstract: Effects of digital transformation on value creation, productivity, and innovation have been previously examined. However, only a few studies have explored how the capital market responds to firms' digitalization, and the relationship between digital transformation and stock price crash risk has remained unknown. The current study explores this gap by using data of listed firms in China in 2007–2020. We create a Chinese dictionary containing digital keywords by using the deep learning model, and set the proportion of intangible assets related to digital keywords as proxy for digital transformation. Findings show that digital transformation significantly reduces stock price crash risk. Moreover, results remain robust after addressing endogeneity problems and several robustness tests. Heterogeneity analysis suggests that the attenuation effect of digital transformation on stock price crash risk is strong for firms that are small, with low analyst attention, in the tech industries, and in areas with high trust. This study validates two potential mechanisms, namely, information and internal control channels. Lastly, digital transformation significantly reduces opacity and increases internal control quality.

Keywords: Digital transformation; Stock price crash risk; Deep learning; Heterogeneity; Mechanism (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521922001570
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:82:y:2022:i:c:s1057521922001570

DOI: 10.1016/j.irfa.2022.102196

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().