Digital washing, a superficial approach to digital transformation, can prevent firms from realizing the genuine strategic value of digitalization and achieving sustainable competitive advantage. However, the predictive conditions driving such window-dressing practices remain underexplored. Drawing on organizational theory and the resource-based view, this study investigates the key factors that trigger digital washing from the perspectives of motivation and capability. Furthermore, from the perspectives of internal and external governance environments, it examines whether equity concentration and analyst coverage exacerbate or mitigate these effects.
Using a sample of Chinese A-share listed firms from 2013 to 2023, this study employs fixed-effects panel data models to empirically examine the conditions under which firms engage in digital washing within a motivation-and-capability framework, and how key environmental contexts moderate these dynamics.
The results indicate that both external compliance pressure-induced conformity and internal change capability deficiency are significantly and positively associated with digital washing. Furthermore, equity concentration and analyst coverage positively moderate these relationships, exacerbating such window-dressing behaviors. Heterogeneity analyses reveal nuanced boundary contexts: the amplifying effect of equity concentration on compliance pressure is more pronounced in profit-oriented firms. Conversely, the exacerbating effect of equity concentration on capability deficiency, alongside the amplifying effects of analyst coverage on both predictors, is significantly stronger in non-profit-oriented firms.
This study contributes to the digital transformation literature by shifting the focus from the consequences of digital washing to the precursors of its emergence. It does so by integrating an internal perspective based on critical change capabilities with an external perspective of compliance-driven peer imitation to elucidate the conditions under which digital washing is observed, and further specifies when it is most likely to prevail by examining the moderating roles of the internal and external governance environment and the heterogeneity of these effects.
