Digital-Driven Sustainability: the Role of Digitalization in Mitigating Environmental Misconduct in Emerging Economies

Despite increasing scholarly interest in digitalization for enhancing corporate performance and sustainability, theoretical and empirical research on its potential to deter firms' environmental misconduct remains limited. To address this gap, this study employs dynamic capability theory to examine the impact of digitalization on reducing environmental misconduct, along with the moderating effects of returnee directors and market competition. Leveraging a longitudinal dataset of 4,234 Chinese-listed firms (2009–2022), we reveal a robust negative association between digitalization and environmental misconduct. In addition, returnee directors and intense market competition amplify this deterrence effect, underscoring the interplay between technological capabilities and institutional governance. The findings remain robust across various alternative measures and endogeneity tests, including the Heckman two-stage model, PSM, and a two-year lagged approach.