Tax incentives and corporate digital transformation: Evidence from China’s accelerated depreciation policy

Corporate digital transformation is a significant path for industrial upgrading and sustainable development. This study employs China’s accelerated depreciation (AD) policy as a quasi-natural experiment to explore the impacts of tax incentives on the digital transformation of enterprises. Using panel data of China’s listed companies from 2010 to 2019, we find that AD policy significantly promotes firms to engage in digitization practices through the channels of firm investment and firm innovation. We also find that the policy effects are more pronounced for firms with a higher level of digitization, firms with stronger financial constraints, non-state-owned enterprises, and firms located in East China. Moreover, we also present a positive relationship betweendigital transformation and firm performance. Our study supplements the literature on the determinants of digital transformation and provides insights into how tax policy shapes firms’ incentives to be more digitized.