“Digitwashing”: The Gap between Words and Deeds in Digital Transformation and Stock Price Crash Risk

ArXiv ID: 2403.01360 “View on arXiv”

Authors: Unknown

Abstract

The contrast between companies’ “fleshy” promises and the “skeletal” performance in digital transformation may lead to a higher risk of stock price crash. This paper selects a sample of Shanghai and Shenzhen A-share listed companies from 2010 to 2021, empirically analyses the specific impact of the gap between words and deeds in digital transformation (GDT) on the stock price crash risk, and explores the possible causes of GDT. We found that GDT significantly increases the stock price crash risk, and this finding is still valid after a series of robustness tests. In a further study, a deeper examination of the causes of GDT reveals that firms’ perceptions of economic policy uncertainty significantly increase GDT, and the effect is more pronounced in the sample of loss-making firms. At the same time, the results of the heterogeneity test suggest that investors are more tolerant of state-owned enterprises when they are in the GDT situation. Taken together, we provide a concrete bridge between the two measures of digital transformation - digital text frequency and digital technology share - and offer new insights to enhance capital market stability.

Keywords: Digital Transformation, Stock Price Crash Risk, Economic Policy Uncertainty, Market Stability, Empirical Analysis, Equities

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders
• Why: The paper relies on standard econometric regression models (e.g., OLS, robustness checks) rather than advanced mathematics, but demonstrates strong empirical rigor through a large dataset (2010-2021 Chinese A-shares), textual analysis of annual reports, and robustness tests.

  flowchart TD
    A["Research Goal:<br>Impact of GDT on Crash Risk"] --> B["Data Collection:<br>2010-2021 Shanghai/Shenzhen A-shares"]
    B --> C["Key Variables:<br>DT Text Frequency vs. Tech Share"]
    C --> D["Methodology:<br>Empirical Analysis & Robustness Tests"]
    D --> E{"Key Findings/Outcomes"}
    E --> F["GDT increases Crash Risk"]
    E --> G["Economic Policy Uncertainty drives GDT"]
    E --> H["Investors tolerate GDT in SOEs"]