The Stages of Enterprise Digital Transformation and its Impact on Internal Control : Evidence from China

Enterprises have accelerated the pace of digital construction in the digital economy and post-epidemic era. Prior literature demonstrates the positive effects of digital transformation on firm performance and capital market performance. This paper aims to explore the mechanism of digital transformation stages on corporate internal management. Using data of Chinese listed companies for the years 2008 to 2020, this paper finds that digital transformation can significantly improve internal control quality. Specifically, the impact of digital transformation on internal control in the digital inception stage is not obvious. The development stage of enterprise digital transformation is positively associated with internal control quality. In the maturity stage, digital transformation can improve five components of internal control. The heterogeneity analysis finds that when the company is state-owned, high-tech, located in the central and western, and located in the provinces with low marketization, the effect of digital transformation on internal control is stronger. Extended analysis find that the digital transformation of enterprises can further contributes to improvements in financial performance and total factor productivity. The findings are of significant value for companies to apply digital technologies in depth to promote digital transformation and achieve high-quality internal control