Digital Transformation, Excessive Decentralization And Internal Control

Constructing a digital China serves as a robust support for building new competitive advantages for the nation.The country is actively promoting the "Cloud Utilization and Data Empowerment" initiative,driving the comprehensive and fullchain transformation of traditional industries towards digitalization and intelligent development.With the advancement and popularization of digital technologies,digital transformation has become a key factor for enterprises to possess core competitiveness in the digital economy.This article focuses on the digital transformation of enterprises,supplementing the perspective of internal control,exploring the significant role of digital technologies in reshaping enterprise thinking patterns and business structures,investigating the impact of digital transformation on the effectiveness of internal control,and analyzing the potential differences in the effects of digital transformation on internal control effectiveness under different parent-subsidiary management control models.Finally,this paper further explores the impact of digital transformation on enterprise performance.Based on a review of relevant literature both domestically and internationally,this paper proposes that enterprise digital transformation will impact internal control from aspects such as data analysis,automated control,intelligent detection,and information sharing,thus reducing enterprise agency costs and improving internal control effectiveness.Applying the principal-agent theory and information asymmetry theory for analysis,the paper finds that digital transformation can better address the agency problems and information asymmetry costs of excessively decentralized enterprises,thus suggesting that promoting digital transformation is conducive to improving internal control effectiveness,with a more pronounced effect in excessively decentralized enterprises.The study selects Chinese A-share listed enterprises from 2007 to 2021 as research subjects.Empirical results show that:(1)digital transformation is conducive to improving the effectiveness of internal control in enterprises;(2)the effect of digital transformation on enhancing internal control effectiveness is more pronounced in excessively decentralized enterprises.This paper uses sensitivity tests,propensity score matching,and instrumental variable methods to test the robustness of the model,verifying the reliability of the conclusions.Furthermore,the heterogeneity analysis reveals that the promotion of digital transformation is more effective in improving internal control for non-stateowned enterprises,with no significant difference in the role of digital transformation in enhancing internal control across different industries.State-owned and local enterprises can exert a stronger effect on improving internal control efficiency by promoting digital transformation in excessively decentralized situations.Simultaneously,further research examines the impact of enterprise digital transformation on performance,finding that implementing digitalization does not necessarily promote enterprise performance growth,but the higher the degree of internal control effectiveness,the stronger the positive impact of digital transformation on enterprise performance.The main contributions of this paper are:(1)This paper expands the study of the economic implications of corporate digital investments from the perspective of internal control;(2)By exploring the relationship between the effectiveness of internal control in group enterprises and digital transformation,this paper further enriches the research on parent-subsidiary management control modes;(3)This article puts forth recommendations and strategies for both governmental and corporate levels,providing valuable insights for governments to encourage digital transformation in enterprises and for businesses to execute such transformations.