The role of internal control and digital transformation between political connections and financial performance: evidence from China

ABSTRACT

Political connections are the main social resource of a company. Internal control and digital transformation are different tools that increase the efficient distribution of resources. This study explores the relationship between executive political connections and financial performance. It also examines the function of internal control quality and digital transformation in terms of this relationship. We used data from Chinese A-share listed companies as a sample. The results suggest that having political connections can significantly improve financial performance and that the quality of internal control plays a partial mediating role in state-owned enterprises. Moreover, when digital transformation is taken as a moderating variable, the role of political connections or internal control in enterprise performance will be weakened. Enterprises should take full advantage of political connections and establish a high-quality internal control system. When enterprises do not have political connections, they can actively carry out digital transformation to change the situation.

KEYWORDS:

• Political connections
• internal control
• digital transformation
• financial performance
• nature of the firm
• China

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research was partly supported by the Natural Science Foundation for Youth of China [Grant No. 71802091], China Postdoctoral Science Foundation [Grant No. 2019M651022], Research Start-up Foundation of Shantou University [Grant No. STF20024], and the Graduate Innovation Fund of Jilin University.

Notes on contributors

Yue Zhang

Yue Zhang is an associate professor of Business Administration at the School of Business and Management, Jilin University, China. Her main teaching and research interests include innovation, internal control, and company strategy.

Chunxing Pan

Chunxing Pan is a postgraduate of Accounting at the School of Business and Management, Jilin University, China. Her main research interests include innovation, internal control, and company strategy.

Shu Meng

Shu Meng is a lecturer of Business Administration at the School of Business, Shantou University, China. Her main teaching and research interests are innovation and entrepreneurship management. She is the corresponding author of this article.

Kun Wang

Kun Wang is a professor of Computer Science and Technology at the School of Management, Changchun Guanghua University, China. His main teaching and research interests include electronic commerce and information management.