Firms in Times of Economic Uncertainty: Digital Integration to Counter Information Asymmetry and ESG Controversies

ABSTRACT This study investigates the impact of economic uncertainty on information asymmetry and ESG (Environmental, Social, and Governance) controversies within companies, while exploring the moderating role of digital integration. By analyzing a panel of 1303 companies across 20 European countries from 2016 to 2023, and employing the two‐stage generalized method of moments (GMM) and two‐stage least squares (2SLS) for robustness tests, the research reveals that economic uncertainty, as measured by the Economic Policy Uncertainty (EPU) index, exacerbates information asymmetry and heightens ESG controversies. However, the adoption of digital technologies mitigates these adverse effects by enhancing transparency and reducing the likelihood of opportunistic behavior. Theoretically, this research contributes to the understanding of how digitalization can reinforce corporate governance and sustainability in uncertain times. Practically, the findings suggest that companies should accelerate their digitalization efforts to safeguard against the destabilizing effects of economic uncertainty, while bolstering their governance and social responsibility performance.