Digital Economy Development and Corporate Bankruptcy Risk: Based on the Perspective of Institutional Isomorphism

ABSTRACTDigital economy development gives birth to new market norms and competition rules, which push digital transformation and further form the legitimacy isomorphism effect to decrease corporate bankruptcy risk. Using a sample of Chinese listed firms from 2011 to 2019, this study investigated how digital economy development influences corporate bankruptcy risk. We observe a negative relationship between digital economy development and bankruptcy risk. This negative relationship is more pronounced in firms when the degree of digital transformation, managerial incentive and internal supervision is expected to be high.Additionally, the risk effect of digital economy is more pronounced for firms with more media coverage, lower urban wealth, industry competition, and better government governance. Our study has implications for research on the microeconomic consequences of digital economy development and the factors influencing corporate bankruptcy risk, providing empirical evidence for bankruptcy risk management in the digital economy era.KEYWORDS: Digital economyinstitutional isomorphismbankruptcy riskisomorphic effectadaptive incentivesJEL: M10O18 Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1. Based on the New Institutionalism of Organizational Sociology, legitimacy is the extent to which organizational actions are accepted and recognized by different stakeholders, as well as the extent to which they are consistent with universal norms, rules, and beliefs.2. Normative isomorphism refers to following professional standards and practices established by the institutional environment. Mimetic isomorphism refers to imitating or copying their successful counterparts when the organization is not sure what to do. Coercive isomorphism refers to the pressure from the entities.3. To exert the effect of the new technology system, it is necessary to establish internal and external systems in line with the new rules of competition.4. Hangzhou city is the birthplace of digital finance in China. The global digital finance center is located in Hangzhou. Therefore, it is reasonable to expect that the closer the geographical distance to Hangzhou is, the higher the level of digital economy development will be.5. If total frequency is less than or equal to 1, the enterprise will not be regarded as a digitally transformed enterprise. Hence, we only retain the samples with total frequency greater than or equal to 2.6. The “terrain relief of the region is flatter” denotes that it is beneficial to the construction of information infrastructure such as information transmission and software industry.