Digital transformation and earnings management via subsidiaries

Xueman Xiang and Biao Yi

Finance Research Letters, 2025, vol. 83, issue C

Abstract: This study examines how corporate digital transformation (DT) affects earnings management via nonwholly-owned subsidiaries (EMNWS). The findings indicate that DT increases EMNWS by intensifying managerial pressure to meet performance targets and reducing the cost of implementing EMNWS. This effect is more pronounced when EMNWS yields higher net profits, in nonstate-owned enterprises, under weak local regulatory environments, and during economic upturns. Moreover, firms avoid accrual-based, real earnings management, and classification shifting in favor of EMNWS. These results reveal a previously underexplored downside of DT: its role in enabling EMNWS.

Keywords: Digital transformation; Earnings management; Nonwholly-owned subsidiary; Business group (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009912

DOI: 10.1016/j.frl.2025.107733

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