Internal Control Quality Systems and Environmental Violations: How Digitalization, Media Coverage and Returnee Directors Make a Difference

ABSTRACT Despite the dominant discourse on the significant role of internal control quality (ICQ) systems in corporate governance, their potential to mitigate corporate environmental violations has remained largely underexplored. Drawing on agency theory and stakeholder theory, we develop and test a novel model proposing that ICQ systems reduce environmental violations, with their impact being amplified by digitalization, media coverage and returnee directors. Using a longitudinal dataset of 773 Chinese‐listed firms from 2008 to 2018, we find a significant negative relationship between ICQ systems and environmental violations. This relationship is more prominent in firms with high levels of digitalization, media coverage and returnee directors. These results remain robust across alternative measures and endogeneity checks, including propensity score matching, Heckman corrections, industry controls and a two‐year lagged approach. This study contributes to the corporate governance and environmental management literature by reframing ICQ systems as a central mechanism for environmental stewardship and providing insights into how contextual factors, such as digitalization, media coverage and returnee directors interact with these systems to further enhance their effectiveness. The findings offer valuable implications for managers and policymakers aiming to improve corporate governance and environmental compliance.