Incentives, penalties, and digital transformation of enterprises: evidence from China

This study uses the difference-in-difference (DID) method to explore the relative effectiveness and mechanism of the "Ten Measures on Air Pollution Prevention and Control" (TMAPPC) policy and the "carbon trading" pilot (CTP) policy on the digital transformation of enterprises. The research results show that the incentive effect of market-incentive environmental regulation on the digital transformation of enterprises is better than that of command-control environmental regulation. In addition, there are differences in the mechanism of action; the level of digital economy development and market competition can strengthen the incentive effect of market-incentive environmental regulation on the digital transformation of enterprises; the government support and media attention can strengthen the incentive effect of command-control environmental regulation on enterprises' digital transformation. The results of heterogeneity analysis show that, compared with the TMAPPC policy, the CTP policy can better drive the digital transformation of enterprises in the eastern region, enterprises in regions with low to medium digital development levels, and enterprises in regions with low environmental regulation intensity, as well as high-tech enterprises. Moreover, the two environmental regulation policies have more significant driving effects on large enterprises and enterprises with low financing constraints. Based on the research conclusions, this study puts forward relevant policy recommendations for further improving environmental regulation policies and promoting the digital transformation of enterprises.