The Impact of Digital Transformation on the Cost of Equity
TL;DR
It is shown that corporate digital transformation significantly reduces the cost of equity, and several recommendations are proposed to promote corporate digital transformation and help enterprises implement digital transformation more effectively, thereby enhancing their competitiveness in the market.
Abstract
In the context of the digital era, the rapid development of computers and information technology has brought profound changes to the operating environment of enterprises, creating broad opportunities while also presenting a series of challenges that require urgent responses. Against this backdrop, digital transformation has gradually become a strategic focus for enterprises seeking to capitalize on emerging opportunities and effectively address these challenges. This study empirically examines listed companies in the Shanghai and Shenzhen stock markets from 2014 to 2023. The results show that corporate digital transformation significantly reduces the cost of equity. Specifically, digital transformation can reduce the cost of equity by mitigating information asymmetry and improving the corporate governance environment. Further analysis reveals that the negative effect of digital transformation on the cost of equity is more pronounced among firms located in eastern China and those with overconfident executives. Based on these findings, this study proposes several recommendations to promote corporate digital transformation and help enterprises implement digital transformation more effectively, thereby enhancing their competitiveness in the market.