How does digital transformation affect compliance performance: evidence from listed corporations in China

Purpose Enhancing corporate compliance performance has become a top priority in both academic and practical circles. The advent of digital transformation brings new dimensions and significance to the topic. This study aims to evaluate a link between corporate digital transformation and compliance performance. Design/methodology/approach Using panel data from China’s A-share listed corporations from 2013 to 2021 and using a two-way fixed-effects model, this work empirically analyzes how corporate digital transformation affects compliance performance and explores its mechanisms. Findings Corporate digital transformation has a positive impact on compliance performance. Mechanism analysis reveals that corporate digital transformation primarily enhances compliance performance by strengthening the corporate digital and green innovation capabilities. The positive effect of digital transformation on compliance performance is further amplified by government subsidies and the regional level of digital economy regulation. In addition, the impact of corporate digital transformation on compliance performance exhibits heterogeneity based on corporate ownership structure and size. Practical implications The findings of this study carry significant practical implications, providing policy insights and confidence for correctly understanding the consequences of corporate digital transformation and effectively leveraging digitalization to enhance corporate compliance performance. First, digital transformation should be used as a key driver to encourage corporations to maintain an appropriate level of digital transformation, thereby improving compliance performance. Second, corporations should be motivated to strengthen their innovation capabilities – particularly those related to the digital and green economy – amid the wave of digitalization, enabling them to more efficiently address compliance challenges. Third, corporations undergoing digital transformation should be granted targeted subsidies, and the external regulation of the digital economy should be refined. This dual approach – combining resource empowerment and institutional norms – will better facilitate the simultaneous advancement of digital transformation and compliance. Originality/value This work makes three principal contributions. First, existing studies mostly focused on the compliance of a certain technical aspect as well as discussing general legal principles, this work proposes a comprehensive conceptualization of “compliance performance” from a holistic and systematic perspective, aligning with the Chinese Government’s advocacy for advancing corporate legal governance through the “macro-compliance” paradigm, while exploring the integration of regulation, litigation, internal control, financial auditing, ESG and other domains to establish a unified and abstract framework of the knowledge of compliance. Second, building upon the integration of the dynamic capabilities theory and the institutional theory, it empirically validates the positive impact of corporate digital transformation on compliance performance within the Chinese institutional context. Third, through examining digital innovation capability, green innovation capability, digital economy regulatory intensity and government subsidies, it elucidates the mechanistic pathways through which digital transformation enhances compliance performance, thereby providing both corporations and policymakers with actionable and clearly delineated strategic options.