Digital transformation and environmental decoupling: evidence from China

Purpose – Environmental decoupling refers to the disparity between firms’ claimed environmental disclosures and their actual environmental practices. Therefore, this study explores the relationship between the adoption of digital transformation and environmental decoupling. Design/methodology/approach – Utilizing a dataset comprising 18, 016 observations of Chinese listed firms from 2008 to 2022, this study employs a firm fixed effects model to explore the relationship between digital transformation and environmental decoupling. Furthermore, for robustness, we employ alternative measures of the main variable, a propensity score matching technique, entropy balancing and a two-stage Heckman test. Findings – Our study shows a robust negative association between digital transformation and environmental decoupling. Our findings suggest that this relationship is more pronounced when firms have high internal control. Moreover, our study shows that external governance mechanisms, such as high audit quality, extensive media coverage, and increased analyst coverage, strengthen this negative relationship. Additional analyses also delve into the heterogeneous variations of this negative relationship across industries. Practical implications – The implications of our results extend to policymakers and stakeholders, emphasizing the pivotal role of digital transformation in aligning claimed and actual environmental disclosures within Chinese listed firms. Originality/value – On the basis of empirical evidence, this study argues that digital transformation reduces environmental decoupling.