Digital transformation effects on Chinese heavily polluting firms internalising environmental costs

Juan He and Zijian He

Sustainability Accounting, Management and Policy Journal, 2025, vol. 16, issue 3, 946-972

Abstract: Purpose - Focusing on the resource crowding-out effect, this study aims to examine the relationship between an enterprise’s digital transformation and the internalisation of environmental costs. Design/methodology/approach - This paper manually collects environmental cost data and measures corporate digital transformation constructed through a machine learning word vector (Word2Vec) technology approach based on the text information of annual reports (MD&A) for heavily polluting firms. Findings - Corporate digital transformation has a significant inhibitory effect on the internalisation of corporate environmental costs. This is because low-level digital transformation has crowded out cash flows, preventing China’s heavily polluting firms from having the extra capacity needed to internalise environmental costs. This crowding-out effect emerges when companies face problems such as capital shortages, short-term profit pressure and intense market competition. These results have the following important implications. Practical implications - The research highlights the need for enterprises to align digital transformation and sustainability strategies by strengthening resource endowment and optimising internal resource allocation. This requires effective use of digital technology and a long-term sustainability vision for heavily polluting firms facing environmental policy pressures. Social implications - Enterprises should assume more social responsibility and achieve sustainable socioeconomic development. It will also help mitigate the adverse environmental externalities stemming from their operations. Originality/value - To the best of the authors’ knowledge, this study considers the impact of enterprise digital transformation on the internalisation level of enterprise environmental costs for the first time and uses enterprises’ financial, management, market characteristics and ownership characteristics to analyse the impact mechanism.

Keywords: Digital transformation; Internalisation level of corporate environmental costs; Heavily polluting firms; Cashflow (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:sampjp:sampj-11-2023-0863

DOI: 10.1108/SAMPJ-11-2023-0863

Access Statistics for this article

Sustainability Accounting, Management and Policy Journal is currently edited by Prof Carol Adams

More articles in Sustainability Accounting, Management and Policy Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().