Can Corporate Digital Transformation Reduce Stock Price Crash Risk? Evidence From China

Digital transformation has emerged as a key strategy for companies seeking competitive advantage, yet our understanding of how it affects capital market stability remains limited. Using data from China spanning 2007–2024, this paper shows that corporate digital transformation significantly reduces future crash risk. This conclusion remains robust after controlling for historical communication technology as an instrumental variable, accounting for exogenous shocks from digital economy policies, and addressing potential omitted variable bias. We provide evidence that corporate digital transformation reduces crash risk by lowering corporate opacity, improving the quality of internal controls, and strengthening operational resilience. Furthermore, we find that the effect is stronger among smaller firms, firms with lower institutional ownership, firms facing more intense market competition, and firms operating in regions with more developed digital infrastructure. This study demonstrates how digital transformation can act as a stabilizer of stock prices.