Technology empowers regulation: how digital regulation affects the stability of capital markets

As corporate misconduct becomes increasingly covert, traditional human-reliant regulatory models face severe challenges, necessitating a shift towards digital regulation. Using a sample of Chinese A-share listed firms from 2011 to 2025, this study investigates the impact of digital regulation on capital market stability. The results show that digital regulation significantly enhances market stability by mitigating information asymmetry (improving transparency) and curbing opportunistic violations (strengthening regulatory enforcement). Furthermore, we document a threshold effect contingent on traditional regulatory resources: the stabilizing effect exhibits diminishing marginal returns, proving more pronounced when traditional resources are scarce. Heterogeneity analyses reveal that digital regulation exerts a crucial institutional complementary function, yielding stronger effects in high-tech industries, firms lacking executives with financial backgrounds, and firms with limited external market attention. This study provides empirical evidence on the economic consequences of digital regulation, offering practical insights for optimizing resource allocation and advancing differentiated regulatory strategies.