Firms' digitalization and stock price crash risk |
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| Institution: | 1. School of Economics, Jinan University, Guangzhou 510632, China;2. School of Economics and Finance, South China University of Technology, Guangzhou 510006, China;1. School of Intelligent Finance and Business, Xi''an Jiaotong-Liverpool University;2. Dongwu Business School, Soochow University;3. Department of Accounting, The University of Melbourne;1. School of Economics and Management, North China Electric Power University, No.2 Beinong Road, Changping District, Beijing, China;2. School of Economics, Beijing Technology and Business University, No.33 Fucheng Road, Haidian District, Beijing, China;3. School of Economics, Beijing Technology and Business University, No.33 Fucheng Road, Haidian District, Beijing, China;1. School of Public Finance and Taxation, Central University of Finance and Economics, Beijing, China;2. School of Business, Renmin University of China, China\n;1. College of Management and Economics, Tianjin University, Tianjin 300072, China;2. China Center for Social Computing and Analytics, Tianjin 300072, China;1. Business School, Central South University, Changsha 410083, PR China;2. Collaborative Innovation Center of Resource-conserving & Environment-Friendly Society and Ecological Civilization, Central South University, Changsha 410083, PR China |
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| 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. |
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