The value of corporate digital transformation: evidence from bond pricing

Purpose The main purpose of this study is to examine the effect of corporate digital transformation on bond credit spreads. Additionally, it also explores the two potential channels, information asymmetry and default risk, through which digital transformation can influence bond credit spreads. Design/methodology/approach We use the bond issuance data of Chinese listed companies over the period 2008–2020. Corporate digital transformation of these companies is measured with textual analysis of the management discussion and analysis part of annual reports. We employ a panel regression model to estimate the effect of digital transformation on bond credit spreads. Findings We find robust evidence that companies with higher digital transformation experience lower bond credit spreads. We further observe that credit spread reduction is higher for firms that are smaller, non-state-owned, have lower credit ratings and have less analyst coverage. We also find evidence that digital transformation reduces credit spreads by reducing the information asymmetry between firms and investors with enhanced information transformation mechanisms and lowering corporate default risk by strengthening operating efficiency. Originality/value To the best of our knowledge, this study is the first attempt to understand the impact of corporate digital transformation on bond credit spreads. Our findings help to understand the effect of digital transformation on firms’ credit worthiness and access to capital.