Cross-sectional uncertainty and expected stock returns

The innovation in technology and economic growth, which are brought about by digital transformation in enterprises, will inevitably impact their performance in the capital market. Using a sample of Chinese A-share listed companies from 2012 to 2021, this study extensively examines the impact, mechanism, and economic consequences of enterprises digital transformation on stock liquidity. The research reveals that enterprises digital transformation can significantly improve stock liquidity. From the perspective of corporate governance, a further analysis indicates that the digital transformation of enterprises can improve stock liquidity by three mechanisms: easing financing constraints, improving the quality of internal control, and enhancing information disclosure. The results of the heterogeneity analysis indicate that the digital transformation of enterprises, combined with a high level of financial technology, developed financial markets, and policy guidance, has a significantly more significant effect on improving stock liquidity. The analysis of economic consequences reveals that the digital transformation of enterprises can lower the risk of a stock price crash and enhance the accuracy of analysts’ forecasts, primarily by improving stock liquidity. This study offers empirical evidence from a micro-mechanism perspective that elucidates the spillover effect of enterprise digital transformation on the capital market. It provides insight into the impact of enterprise digital transformation on stock liquidity and offers theoretical guidance to promote the adoption of enterprise digital transformation across different countries and enhance stock liquidity in the capital market.

Section: Further Analysismentioning

confidence: 99%

Enterprise digital transformation’s impact on stock liquidity: A corporate governance perspective

Liu,

Zhu,

Cheng

2024

“…With the advancement of digitalization, the enterprise management model, incentive mechanism, and good technology have supported the internal governance system. In addition, Yu and Huang [ 48 ] have found that uncertainty possesses a considerable degree of predictive power in determining anticipated stock returns. Hence, it is imperative for organizations to employ a systematic and accurate approach in balancing risk and return in order to optimize their risk-taking capabilities [ 49 ].…”

Section: Literature Reviewmentioning

confidence: 99%

Can digital transformation reduce corporate stock price crashes?

Zhao,

Li,

Ren

2023

Purpose The purpose of this paper is to study the impact of enterprises’ digital transformation on the risk of stock price crashes, but also to study the mediating role of enterprises’ financialization and accounting conservatism in the enterprises’ digital transformation on stock price crash risk. Design/methodology/approach Based on the data of 2,599 listed companies in China from 2010 to 2019, this paper constructs indicators of enterprise digital transformation through word frequency analysis method, and uses fixed-effects model and mediated-effects model to explore the impact and mechanism of enterprise digital transformation on the stock price crash risk. Findings This study shows that firms’ digital transformation reduces the risk of stock price crashes and that financialization of firms and accounting conservatism play a significant mediating effect between enterprises’ digital transformation and the risk of stock price crashes. Originality/value This study enriches the study of stock price crash risk by including digital transformation in the field of stock price crash research, and it examines the mediating roles of financialization of enterprises and accounting conservatism, which provides a new explanatory mechanism to the study of the correlation between digital transformation of enterprises and the risk of stock price crash.

“…Firms typically require access to credit facilities from banks in their production processes, particularly for labor hiring [ 36 ]. Liquid cash is an important channel that affects the value of an enterprise, especially when external uncertainty occurs [ 37 , 38 ]. Reduced access to credit, which subsequently reduces working capital, prompts firms to lower average wage levels, negatively impacting the share of labor income [ 39 ].…”

Section: Model Construction and Research Hypothesismentioning

confidence: 99%

Local government debt and labor income share: Evidence from China

Wu,

Tian,

2023

This study employs a CES production function to construct a theoretical model of labor income share and uses a two-way fixed effects model to test the causal effects of local government debt (LGD) on the labor income share of enterprises. Local government debt governance policies are utilized as exogenous shocks, and a DID (Difference-in-Differences) model is applied for endogeneity testing. The results have passed a series of robustness checks. The findings suggest that LGD decreases the share of firms’ labor income. The mechanism analysis suggests that LGD lowers the labor remuneration of residents, the employment of labor in enterprises, and the size of bank loans mainly; while raising the cost of using funds in enterprises. Moreover, this negative effect is more apparent in non-state-owned enterprises, small and medium-sized enterprises, and enterprises with high financing constraints. This study presents new evidence on how the labor income share of enterprises is affected from the perspective by local governments in China. It has important implications for further deepening local government debt governance and achieving common prosperity.