We examine the impact of digital transformation on a firm’s ESG performance using data from listed firms in China. Leveraging the recent advances in textual analysis, we quantify the extent of a firm’s digital transformation. The results show that digital transformation enhances a firm’s ESG performance. Moreover, results remain robust after addressing endogeneity problems and several robustness tests. In addition, we validate potential mechanisms that the digital transformation mainly improves the ESG performance of firms by improving the level of environmental performance, corporate social responsibility, and corporate governance. To examine the economic consequence, we find that digital transformation gains more government subsidies and analysts’ attention increasing the management’s positive tone at the earnings communication conferences by improving the firm’s ESG performance. Heterogeneity analysis suggests that the effect of digital transformation on ESG performance is stronger for firms in severely polluting industries and executives with information technology experience.
No takes yet. Share an insight, caveat, or question.
Luo et al. (2023) studied this question.
Synapse has enriched 3 closely related papers on similar clinical questions. Consider them for comparative context: