Political connection and corporate digital transformation: evidence from China

The purpose of this paper is to examine how political connections impact corporate digital transformation in the era of digital economy. We conduct regression analyses using a sample of A-share listed companies from 2008 to 2021 to examine whether and how political connections impact the digital transformation of firms. The results show that political connections significantly impede the digital transformation of firms. The mediating effects analysis shows that the inhibiting effect is primarily exerted through two channels: weakening board supervision and suppressing innovation quality and the concealment of favoritism by local officials may account for the non-significance of the government subsidy mechanism. The moderating analysis shows that equity concentration and salary incentives mitigate the negative effects of political connections. The average age of executives strengthens the negative effects of political connections, while the heterogeneity of executive age weakens the negative effects of political connections. And customer concentration weakens the negative effects of political connections. This paper decomposes the mechanisms of political connections affecting DT of firms into the positive and negative sides and forms an analytical framework, which is used in the moderation and heterogeneity analysis. This provides some inspiration for the research of analyzing political and economic consequences of political connections, and has useful references for the government and firms on how to correctly treat the relationship between them.