Does corporate digitalisation moderate real earnings management?

Abstract

We investigate the association between corporate digitalisation and firms' real earnings management (REM). Using an archival data set of 11,806 firm‐year observations from the Shanghai and Shenzhen stock exchanges between 2011 and 2020, our results show a negative association between the degree of corporate digitalisation and the level of REM. Furthermore, we find that the association between corporate governance mechanisms – including power balance, board independence and audit quality – and REM is more pronounced in firms with a high degree of digitalisation. We also note that the reduction of REM resulting from corporate digitalisation has a positive effect on firms' operating efficiency.