Analyzing the mechanism of excess control on digital transformation using biomechanical modeling

Article ID: 1865

Abstract

In order to explore the impact of over-control on the digital transformation of enterprises, the constraints of over-control on digital transformation are analyzed based on a biomechanical model using Chinese A-share listed private enterprises as an example. A number of private enterprises between 2014 and 2023 were selected as the research subjects. After excluding financial institutions, ST companies and samples with incomplete data, a dataset of 1517 firms and 10,388 firm-year observations was finally retained. The results show that excessive control affects the innovation decisions of enterprises to a certain extent and reduces the effectiveness of enterprise digital transformation. When controlling shareholders or de facto controllers’ control exceeds their shareholding, they tend to intervene excessively in enterprises’ technological research and development and digitalization investment, leading to inefficient resource allocation and slowing down the transformation process. In addition, the imperfect corporate governance structure and excessive concentration of power also exacerbate the risks in the process of enterprise digital transformation. To mitigate the negative effects of excess control, enterprises should implement dual-level governance optimization: (1) Establish ownership-cash flow alignment mechanisms such as sunset clauses or shareholding caps to prevent long-term entrenchment; (2) enhance board independence through increased representation of external directors and the formation of digital oversight committees. These measures can reduce the CFi index and increase transparency (ITC), thereby improving transformation efficiency. Moreover, embedding data governance frameworks into digital strategy development can counterbalance centralized control by ensuring stakeholder-informed decision-making. In simple terms, our model shows that when a small number of decision-makers control too much power, it can “choke” the organization’s ability to share resources and adapt to digital changes, much like how an overly tense muscle restricts movement in a biomechanical system.