Empowering ESG performance through digital transformation: from the perspective of internal control and government regulation

Hubin Li, Xue yan Dong and Jun Zhang

International Journal of Managerial Finance, 2026, vol. 22, issue 2, 228-258

Abstract: PurposeThis study investigates how digital transformation (Dig) influences ESG performance (ESG) by constructing an ESG model based on signalling theory. It examines green innovation capability, information disclosure, and investment efficiency as mediators and considers internal control and government regulation as moderators from an internal–external governance perspective.Design/methodology/approachBased on a 2011–2023 panel of Chinese A-share listed companies, we estimate panel regression models with year and industry fixed effects to identify the association between Dig and ESG. We then test the mediating roles of green innovation, disclosure quality and investment efficiency, and the moderating roles of internal control and government regulation.FindingsDig significantly enhances ESG. Green innovation, information disclosure, and investment efficiency mediate this relationship, while internal control and government regulation strengthen the connection between Dig and ESG.Practical implicationsThe results suggest that firms can leverage digital technologies, supported by stronger internal control systems, to enhance green innovation, improve ESG disclosure and investment efficiency, and better manage ESG-related risks. Regulators and policymakers may use digital tools to strengthen ESG oversight, reduce information asymmetry and design more targeted incentives that encourage value-enhancing digital transformation. For investors and lenders, our evidence suggests that digital transformation associated with higher ESG performance may signal lower operational risk and more sustainable long-term value, and can inform capital allocation and risk evaluation.Originality/valueThis research deepens the understanding of the mechanisms linking digital transformation to corporate ESG performance and clarifies how internal and external governance conditions shape these effects. The findings provide evidence-based guidance for managers, regulators and capital-market participants on when and how digital tools are associated with stronger ESG practices and more sustainable corporate development.

Keywords: Digital transformation; ESG performance; Internal control; Government regulation (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-04-2025-0211

DOI: 10.1108/IJMF-04-2025-0211

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