Is climate policy uncertainty an angel or a devil? Empirical evidence from corporate digital transformation

This paper investigates the impact of climate policy uncertainty (CPU) on corporate digital transformation using a sample from Chinese A-share listed firms between 2010 and 2022. The empirical results demonstrate that a 1 % increase in CPU leads to a 0.33 % rise in the level of corporate digital transformation, suggesting that firms strategically adopt digital technologies in response to climate transition risks. To address endogeneity concerns, we employ a two-stage least squares (2SLS) regression, using the U.S. CPU index as an instrumental variable, which further corroborates the positive relationship between CPU and digital transformation. Mechanism analyses reveal that CPU increases firms' climate risk perception and operating risks, driving firms to accelerate digital adoption as a risk-mitigation strategy. Moreover, firms engaged in digital transformation report an improvement in environmental performance and operational efficiency, thus leading to better financial performance. The effects are more pronounced for firms in polluting industries, non-state-owned enterprises, smaller firms, and those with higher financial constraints. These findings underscore the strategic importance of digital transformation in addressing environmental regulatory uncertainties, providing important insights for both policymakers and corporate managers.