Navigating the AI–TFP Nexus: Internal Control Quality as a Key Mediator in Chinese Listed Firms

While artificial intelligence (AI) is widely recognized for its transformative potential, the precise pathways through which it enhances firm productivity need further exploration. This research investigates the impact of AI adoption on total factor productivity (TFP) within Chinese A-share listed companies from 2007 to 2022. We find a significant positive effect of AI on firm-level TFP, a result that holds under a series of rigorous robustness checks. Importantly, we identify a key transmission mechanism: the positive relationship between AI and TFP is partially channeled through enhanced internal control quality (ICQ). This indicates that AI-driven improvements in organizational governance and risk management constitute a vital link to TFP gains. These findings highlight that the strategic integration of AI with robust ICQ systems is crucial for firms realizing their full productivity-enhancing potential, especially those in emerging markets.