This study aims to examine whether smart city policies influence corporate digital transformation. Using China’s National Smart City Pilot Project as a quasi-natural experiment, we investigate if smart city designation affects firms’ digitalization levels as reflected in their Management Discussion and Analysis (MD&A) disclosures.
This study aims to use a smart city quasi-natural experimental design and investigate its role on firms’ digitalization by using textual analysis of MD&A disclosure. Cross-sectional tests, supportive channel analyses (examining government procurement, investment and innovation) and a “talk-versus-action” test are conducted to validate the findings.
Smart city designation is positively associated with digitalization-related MD&A disclosure. This effect is stronger for non-SOEs, firms in less competitive industries and those in Eastern regions. Mechanism tests indicate government digital procurement, digital intangible assets and digital innovation as key channels. Crucially, increased disclosure predicts subsequent substantive digital investment and innovation, not mere symbolism and improves internal control quality while reducing real earnings management.
This paper provides novel evidence on the spillover effects of smart city initiatives on micro-level firm behavior. It demonstrates that smart city policies extend beyond municipal infrastructure to catalyze substantive corporate digital transformation and enhance the information environment, offering insights into the real economic consequences of urban digitization policies.
