Transformations  in
Business & Economics

CORPORATE DIGITAL TRANSFORMATION AND FINANCIAL REPORTING QUALITY: AN EMPIRICAL STUDY OF CHINESE LISTED COMPANIES
Xiaosong Zheng, Xuxin Jin, Mykhailo Yastrubskyy

ABSTRACT: In the existing research, the relationship between corporate digital transformation and financial reporting quality (FRQ) is not well explored and there are no consistent research findings. This study investigates the relationship between corporate digital transformation and FRQ in the Chinese context. We use Chinese A-share listed companies from 2011-2021 as data, the digital transformation index as an indicator of the degree of digital transformation, and the level of retained earnings management as an indicator of FRQ. We conducted stepwise regressions, mediation effect tests and robustness tests on the relevant data. The results show that there is a significant positive relationship between corporate digital transformation and FRQ, and that internal control plays a mediating role between digital transformation and FRQ, i.e., digital transformation can improve FRQ by improving the quality of corporate internal control. Finally, based on the findings, management recommendations and policy suggestions are provided for companies and governments to improve FRQ.

KEYWORDS:  digital transformation, financial reporting quality, internal control, corporate, China

JEL classification:  M41, O33