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

Abstract

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.