A study of the impact of digital transformation on corporate financial risk

As China advances toward high-quality economic growth, digital transformation has become a crucial strategy for improving corporate financial oversight and reducing financial risks. Drawing on panel data from A-share non-financial firms listed in Shanghai and Shenzhen between 2014 and 2022, this study employs a text analysis approach to construct a digital transformation index. The findings reveal that increased digitalization significantly lowers financial risk, even after accounting for industry, temporal effects, and potential endogeneity. Further analysis identifies financial flexibility as a partial mediator, with ESG performance and digital financial inclusion acting as respective positive and negative moderators. Additionally, The impact of digital transformation differs depending on the type of firm, regions, technological classifications, and ESG levels. This research deepens the understanding of how digital strategies interact with financial vulnerabilities and offers actionable insights for firms seeking to improve digitalization and risk resilience.