Are digital trends driving corporate environmental, social, and governance practices? Evidence from China

Abstract

This paper aims to explore whether the trend of digital transformation is driving companies to engage in environmental, social, and governance (ESG) practices. The impact of strategic transformation on firms is all‐encompassing, making it difficult to capture the mechanisms of impact on corporate ESG practices. To this end, we construct a new theoretical framework that combines slack resources and stakeholder theory. This framework attributes the heterogeneity of ESG practices to differences in the ability and willingness of companies. Using data from Chinese listed companies, we find that the digital transformation is improving ESG performance. The mechanism is that digital transformation increases the availability of long‐term slack resources and strengthens the connection with stakeholders. However, there is insufficient evidence that digital transformation contributes to greater transparency in corporate disclosure. We also find that this effect is larger for firms with less risk‐responsiveness and firms with international connections, but smaller for firms with political connections. Our findings affirm the advantages of contemporary trends in corporate digital transformation for ESG practices and offer a new theoretical framework to investigate the factors influencing ESG practices.