The cost of pollution in the digital era: Impediments of air pollution on enterprise digital transformation

The negative externalities of air pollution constrain the transformation of the real economy. Identifying the intrinsic association between air pollution and enterprise digital transformation (EDT) under the wave of the digital economy can help realize the synergistic promotion of green development and the digitalization process. The paper examines the impact of air pollution on EDT by matching the data of listed enterprises in Shanghai and Shenzhen, China, from 2010 to 2019 with city-level air pollution data. This paper uncovers the following findings: First, air pollution significantly hinders EDT. This finding remains robust after accounting for endogeneity, strategic disclosure in enterprise annual reports, and sample self-selection. Second, the effect of air pollution on EDT is asymmetric at the enterprise, industry, and regional levels. Specifically, air pollution exerts a more pronounced dampening effect on EDT in state-owned enterprises, heavily polluting industries, and low-marketization regions. Third, air pollution dampens EDT by increasing economic policy uncertainty external to the enterprise, reducing its internal talent reserve, and crowding out its digital investments. Fourth, augmenting the size of government subsidies, promoting digital infrastructure construction, and strengthening digital financial development are effective ways to mitigate air pollution's impediments to EDT. Fifth, in the face of severe air pollution, aggressive digital transformation strategies adopted by enterprises can alleviate financing constraints and enhance enterprise value. This paper effectively identifies the cost of pollution in the digital era from an EDT perspective, providing important policy insights for advancing EDT under air pollution. •Air pollution significantly hinders the EDT.•Rising EPU, declining EHCR and losing digital inputs are key mechanisms.•Heterogeneity exists at the enterprise, industry and regional levels.•GS, DI and DF have moderating effects.•Advancing EDT in air pollution mitigates FC and improves EV.