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Does Digital Transformation Enhance Firm’s ESG Performance? Evidence from an Emerging Market

Author

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  • Yonggen Luo
  • Na Tian
  • Deli Wang
  • Wenqi Han

Abstract

We examine the impact of digital transformation on a firm’s ESG performance using data from listed firms in China. Leveraging the recent advances in textual analysis, we quantify the extent of a firm’s digital transformation. The results show that digital transformation enhances a firm’s ESG performance. Moreover, results remain robust after addressing endogeneity problems and several robustness tests. In addition, we validate potential mechanisms that the digital transformation mainly improves the ESG performance of firms by improving the level of environmental performance, corporate social responsibility, and corporate governance. To examine the economic consequence, we find that digital transformation gains more government subsidies and analysts’ attention increasing the management’s positive tone at the earnings communication conferences by improving the firm’s ESG performance. Heterogeneity analysis suggests that the effect of digital transformation on ESG performance is stronger for firms in severely polluting industries and executives with information technology experience.

Suggested Citation

  • Yonggen Luo & Na Tian & Deli Wang & Wenqi Han, 2024. "Does Digital Transformation Enhance Firm’s ESG Performance? Evidence from an Emerging Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(4), pages 825-854, March.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:4:p:825-854
    DOI: 10.1080/1540496X.2023.2253975
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