Purpose Construction enterprises often struggle to reduce costs proportionally when project revenues decline, a problem that undermines resource efficiency and financial resilience. This study investigates whether digital regulatory systems can help construction firms achieve more flexible cost management during revenue fluctuations. Design/methodology/approach We analyze 4,247 firm-year observations drawn from 463 A-share listed construction companies on Shanghai and Shenzhen Stock Exchanges between 2008 and 2018, using the phased rollout of a digital tax monitoring system across provinces as a natural experiment. Cost adjustment patterns are measured by comparing quarterly cost and revenue changes over rolling multi-year windows, applying difference-in-differences estimation to isolate the system's independent effect. Robustness is verified through parallel trends testing, placebo tests, propensity score matching and instrumental variable estimation. Findings Digital monitoring substantially improves cost flexibility in construction enterprises. The system operates through two channels: it tightens cash flow discipline, prompting managers to trim unnecessary costs during downturns and it increases transparency in cost reporting, reducing opportunities for maintaining inefficient spending. These improvements are particularly pronounced for firms facing financing difficulties and for privately owned construction companies. Originality/value While previous research has explored how firms’ own digital investments affect operations, this study reveals that external digital governance, through regulatory technology, independently reshapes cost management behavior in construction. By focusing on Asia's largest construction market, we provide practical evidence on how policy-driven digitalization can enhance project cost control and cost adjustment responsiveness.
Lei et al. (Fri,) studied this question.