Impacts of Administrative Penalties Toward Digital Technology Companies on Agency Costs: Insights From Chinese Listed Companies

ABSTRACT Recently, Chinese administrative authorities have introduced administrative penalties, specifically targeting violations of adopting digital technology innovations and applications (termed administrative penalties toward digital technology companies, APDTs). These penalties have significantly heightened operational pressure on Chinese enterprises. This study explores the impact of APDTs on the agency costs between owners and managers. Through a combination of theoretical analysis and empirical testing utilizing Chinese city data and samples of listed companies from 2008 to 2020, we investigate the intricate mechanisms underlying this impact. The findings reveal that, first, APDTs exacerbate the agency conflict between owners and managers, resulting in increased agency costs. Second, the operational mechanism involves the elevation of firms’ debt capital and the reduction of their equity capital, consequently intensifying the agency costs between owners and managers. Lastly, the impact of APDTs on agency costs displays heterogeneity, diminishing as firms’ investment opportunities increase.