Corporate digital transformation and idiosyncratic risk: Based on corporate governance perspective

This study examines the relationship between corporate digital transformation and idiosyncratic risk. We employ crawler technology to gather “digital transformation” characteristic words in annual reports, and innovatively construct a proxy variable for corporate digital transformation. Using 12,516 observations from 2941 listed companies in China across the period 2014 to 2020, we find that the relationship between corporate digital transformation and idiosyncratic risk presents as “U-shaped”. The results are still robust when we address the endogeneity concern, and use alternative measures of the dependent variable, further validate the U-shaped relationship as well as exclude special samples. The moderating effect of management shareholding and product market competition is further explored from internal and external corporate governance mechanisms, respectively. Results show that internal and external corporate governance mechanisms strengthen the relationship between digital transformation and idiosyncratic risk. In general, our research results enrich the study of corporate digital transformation and risk management, which gives some insight into corporate governance in the digital age. •Constructing digital transformation (DT) proxy variable by text analysis.•The impact of DT on idiosyncratic risk (IR) is explored.•The relationship between DT and IR with “U-shaped” is identified.•Corporate governance mechanisms have positive effect on DT to IR.