The Impact of Corporate Digital Transformation on Earnings Management——Evidence from China

Firms attach more and more important to digital transformation in the wave of digitalization. Using a sample of Chinese listed firms from 2010 to 2020, this study explores how digital transformation affects earnings management. The results show that digital transformation decreases real earnings management and increases accrual earnings management. The impact of digital transformation on earnings management is more significant in non-state-owned firms, high-tech firms, and firms in the eastern region. Mechanism tests show that digital transformation decreases real earnings management by raising analysts’ following and improving internal control efficiency, increases accrual earnings management by reducing the employment of big four accounting firms, and causes great earnings pressure. The main results are robust after considering the endogeneity, alternative measurements, Heckman two-stage regression, and propensity score matching. This study provides insights into the influence mechanism of digital transformation on business management and provides implications for firms' digital transformation and government regulation