Digital transformation and the allocation of decision-making rights within business groups – Empirical evidence from China

Abstract

Newswise — The widespread adoption of digital technologies has spurred many organizations to embark on digital transformation initiatives. This study explores the impact of digital transformation on the allocation of decision-making rights within business groups (BGs). Drawing upon an integrated framework informed by agency theory and decentralization theory, and utilizing a panel dataset comprising 15,358 firm-year observations spanning from 2011 to 2021, this study demonstrates that (a) digital transformation significantly inhibits the centralization of decision-making rights within BGs, (b) the effect of digital transformation on decision rights centralization is more pronounced in BGs grappling with high economic policy uncertainty and weak internal control, and (c) agency expense and agency efficiency of subsidiaries are two transmission mechanisms for the impact of digital transformation on the allocation of decision-making rights within BGs.