The stages of enterprise digital transformation and its impact on internal control: Evidence from China

Weixuan Cheng, Cheng Li and Tianjiao Zhao

International Review of Financial Analysis, 2024, vol. 92, issue C

Abstract: Enterprises have accelerated the pace of digital construction in the digital economy and post-epidemic era. Prior literature demonstrates the positive effects of digital transformation on firm performance and capital market performance. This paper aims to explore the mechanism of digital transformation stages on corporate internal management. Using data of Chinese listed companies for the years 2008 to 2020, this paper finds that digital transformation can significantly improve internal control quality. Specifically, at the development stage of enterprise digital transformation, the positive impact of digital transformation on internal control becomes apparent. In the maturity stage, digital transformation can improve five components of internal control. The heterogeneity analysis finds that when the company is state-owned, high-tech, located in the central and western, and located in the provinces with low marketization, the effect of digital transformation on internal control is stronger. Extended analysis finds that the digital transformation of enterprises can further contribute to improvements in financial performance and total factor productivity. The findings are of significant value for companies to apply digital technologies in depth to promote digital transformation and achieve high-quality internal control. The study contributes to the literature on the process of digital transformation and internal control from the Chinese context. The study also suggests some future research opportunities, such as other impacts of digital transformation and economic consequences for other economies, and developing new tools and methods for measuring the stages of digital transformation.

Keywords: Digital transformation; Digital technology; Internal control (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:92:y:2024:i:c:s1057521924000115

DOI: 10.1016/j.irfa.2024.103079

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