Can digital transformation reduce corporate illegality?

The advent of the digital economy has ushered in unprecedented opportunities for corporate development. Utilizing a comprehensive data set comprising Chinese listed companies spanning the period 2011–2020, this study empirically examines the impact of digital transformation on corporate illegality. The findings reveal a significant reduction in corporate illegality attributable to digital transformation. This empirical result retains its significance even when subjected to a battery of robustness tests. In terms of the underlying mechanisms, this paper conjecture that digital transformation reduces the internal and external information asymmetry, thereby curbing corporate illegality. Further heterogeneous analysis shows that digital transformation is more effective among corporates with higher agency cost (state-owned or large corporates) or corporates located in regions with lower degree of marketization level. These heterogeneous effects provide supportive evidence to the above conjecture. The implications of this study extend the boundaries of digital transformation research and furnish novel and actionable insights into the prevention of corporate illegality.