Digital Transformation and Corporate Violations: Evidence From China
研究发现数字化转型与中国企业违规呈正相关，但机制分析显示其同时具有抑制效应（加强内控）和暴露效应（提高信息透明度），长期可能转为负相关。
ABSTRACT Research Question/Issue This study investigates the effect of digital transformation on corporate violations, addressing the divergence in the literature. Research Findings/Insights We find that digital transformation is significantly positively correlated with corporate violations, and this finding survives a series of robustness tests, including a natural experiment. Mechanism tests reveal a dual effect of digital transformation on corporate violations. First, digital transformation decreases the likelihood of misconduct by strengthening internal control, demonstrating an inhibitory effect. Second, it increases the exposure of committed violations by enhancing information transparency, manifesting an exposure effect. In the Chinese context, the net outcome of these two opposing forces ultimately results in a positive relationship. However, given the evolving trends of these effects, we theoretically conjecture that a negative association may emerge in the long run, though current empirical evidence remains suggestive rather than conclusive. Heterogeneity analysis further shows that this relationship is more pronounced in firms with higher violation incentives, greater opportunity for misconduct, and stronger rationalization propensity (i.e., firms with inherently higher violation propensities). Finally, evidence indicates that digitalization increases the exposure of minor violations, thereby helping to avert major corporate scandals. Theoretical/Academic Implications This study reconciles discrepancies in prior research and contributes to the literature on digital transformation and corporate governance. By decomposing digitalization's role into inhibitory and exposure effects, it provides a more comprehensive understanding and sheds new light on the “dark side” of corporate digitalization. Practitioner/Policy Implications Practitioners should adopt a patient approach to digital transformation, focusing on its long‐term impacts rather than being discouraged by short‐term outcomes, and recognize the substitutive or complementary nature of human–technology interactions in governance. Regulators are advised to leverage digital technologies to strengthen misconduct detection, while investors should view digitalization as a value‐enhancing governance mechanism.