Author(s)

Wensheng Wang ¹, Zequan Li ¹

Affiliation(s)

¹ School of Economics, Hangzhou Dianzi University, Hangzhou, China

Corresponding Author

Wensheng Wang

ABSTRACT

Digital transformation is increasingly becoming an inevitable choice for the high-quality development of enterprises, so how will the digital transformation of enterprises affect their stock price crash risk? The article takes the A-share listed enterprises in Shanghai and Shenzhen from 2012 to 2022 as a sample, and the results obtained by empirical tests show that (1) the digital transformation of enterprises can reduce the risk of stock price crash and has a long-term nature; (2) the digital transformation of enterprises can reduce the risk of stock price crash by reducing the inefficient investment of the enterprises, which is mainly the problem of under-investment; (3) the digital transformation of enterprises with different property rights nature, quality of internal control, and institutional investors' shareholding have different impacts on the risk of stock price collapse when enterprises undergo digital transformation. The findings of this paper can provide a basis for enterprises to make decisions on important investment strategies in the process of digital transformation.

KEYWORDS

Enterprise digital transformation, Collapse of stock price, Inefficient investment Over-investment, Under-investment

CITE THIS PAPER

Wensheng Wang, Zequan Li, Digital Transformation, Inefficient Investments and the Risk of a Stock Price Crash. Financial Engineering and Risk Management (2025) Vol. 8: 154-162. DOI: http://dx.doi.org/10.23977/ferm.2025.080218.

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