AI-Oriented Digital Governance and Financial Transparency: Evidence from Chinese Listed Firms

This study investigates whether Chinese listed firms’ financial transparency improves with AI. Our main AI measure is AI-related disclosure intensity based on annual report text. We validate it using firm-year proxies for AI-related patents and AI/software investment to reduce potential symbolism. We add extensive controls, governance covariates, and mechanism tests to support the instrumental-variable results. From 2011 to 2023, we measured transparency through stock-exchange disclosure quality ratings and AI through annual report AI-related language for 1,028 Shanghai and Shenzhen Stock Exchange firms. Using provincial internet penetration as an AI instrument, we estimate two-way fixed effects models and address endogeneity using two-stage least squares. We also compare the effect by firm size, ownership (SOE vs. non-SOE), industry (high tech vs. non-high-tech), and regional development. Even after controlling for firm characteristics, absorbing firm and year effects, and instrumenting AI, firms with higher AI intensity are more transparent. In smaller, privately owned, and high-tech firms, and in firms located in less-developed regions, transparency gains are greatest. The findings suggest that AI-supported monitoring and documentation improve reported information and can partially replace poorer internal control capabilities.

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Publication Details

Journal
Bulletin of Monetary Economics and Banking
Published
2026-11-11
DOI
https://doi.org/10.59091/2460-9196.2738
Primary Topic
Auditing, Earnings Management, Governance
Type
article
Field-Weighted Citation Impact
0.00
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article

AI-Oriented Digital Governance and Financial Transparency: Evidence from Chinese Listed Firms

Yulun Gu
Bulletin of Monetary Economics and Banking
Auditing, Earnings Management, Governance
article

AI-Oriented Digital Governance and Financial Transparency: Evidence from Chinese Listed Firms

Yulun Gu
article en

Abstract

This study investigates whether Chinese listed firms’ financial transparency improves with AI. Our main AI measure is AI-related disclosure intensity based on annual report text. We validate it using firm-year proxies for AI-related patents and AI/software investment to reduce potential symbolism. We add extensive controls, governance covariates, and mechanism tests to support the instrumental-variable results. From 2011 to 2023, we measured transparency through stock-exchange disclosure quality ratings and AI through annual report AI-related language for 1,028 Shanghai and Shenzhen Stock Exchange firms. Using provincial internet penetration as an AI instrument, we estimate two-way fixed effects models and address endogeneity using two-stage least squares. We also compare the effect by firm size, ownership (SOE vs. non-SOE), industry (high tech vs. non-high-tech), and regional development. Even after controlling for firm characteristics, absorbing firm and year effects, and instrumenting AI, firms with higher AI intensity are more transparent. In smaller, privately owned, and high-tech firms, and in firms located in less-developed regions, transparency gains are greatest. The findings suggest that AI-supported monitoring and documentation improve reported information and can partially replace poorer internal control capabilities.

Bulletin of Monetary Economics and BankingVol. 29(3)
Shandong University of Science and Technology (CN)
Auditing, Earnings Management, Governance
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