An Empirical Study of the Relationship Between Digital Transformation, Corporate Social Responsibility and Financial Performance
Authors: Wang Fenghua , Jia Yuhan , Li Guanwei , Lam Monica , Liu Ye 
Published: April 2024

The article investigates the impact of corporate social responsibility (CSR) and digital transformation (DT) on corporate financial performance (CFP) indicators, as well as the moderating effect of DT on the relationship between CSR and CFP indicators. The study was conducted using Stata 17.0 software based on data (5709 observations) on 558 A-share listed manufacturing companies of the Shanghai and Shenzhen Stock for 2012-2021 (excluding financial and insurance companies, ST and ST* companies, as well as companies with incomplete data). The independent variable used in the modelling process is the CSR rating report of the Hexun website, indicators of which are reconstructed by dividing them into strategic CSR (shareholder responsibility, employee responsibility, customer responsibility) and altruistic CSR (environmental responsibility and social contribution). The dependent variable is 2 CFP indicators: return on equity (ROE) and TOBIN’s Q. The DT index is used as a moderating variable, for the calculation of which the texts of companies’ annual reports were segmented using the Python programming language and standardised data on the frequency of keywords in 4 dimensions: digital technology application, Internet business model, intelligent manufacturing and contemporary information system; the weights for each dimension index was determined using the entropy approach. The control variables are corporate assets (Size), financial leverage level (Lev), current ratio (Cur), firm growth (Gro), shareholding ratio of the largest shareholder (First) and technological innovation (RD) of companies. The study also considered the year and industry factors. To study the moderating effect of DT on the relationship between CSR and CFP indicators of companies in different situations, the grouping variables chosen were the ownership type (state-owned and non-state-owned companies), the enterprise lifecycle (cash flow portfolio method was used to identify its stages) and the degree of market competition (Herfindahl-Hirschman Index). The modelling is based on a fixed-effects regression model. The study found that both CSR and DT have a positive impact on CFP, and that DT moderates the relationship between CSR and CFP, indicating that integrating digital technologies with sustainable development strategies can enhance financial benefits. The study also highlights the importance of different dimensions of corporate social responsibility. A high level of digital transformation strengthens the promotion effect of strategic social responsibility on current and future financial success of companies. Meanwhile, the promotion effect of altruistic social responsibility on current financial performance is significant. Heterogeneity analysis shows that the positive moderating effect of digital transformation on the relationship between corporate social responsibility and financial performance mainly applies to private firms, firms in the mature stage, and firms with low market competition. The article offers practical advice for businesses seeking to use digital transformation to maximise economic and social value.