Can corporate digital transformation alleviate financing constraints?

Abstract

ABSTRACT Financing constraints present a significant challenge for enterprises. Given China’s push for the integration of digital technology and the real economy, it is crucial to examine the impact of corporate digital transformation on financing. Using data from Chinese A-share listed companies from 2010 to 2019, we construct the digital transformation indicator employing a machine learning approach and find that corporate digital transformation can significantly alleviate financing constraints. The mechanism analysis shows that digital transformation improves corporate financing by reducing information asymmetry and transaction costs on both sides of financing and enhancing corporate performance. Combined with the mechanism analysis, we reveal that digital transformation has a significant effect on the alleviation of financing constraints among firms with private ownership, higher levels of interaction with investors, more developed financial environments and more intermediaries marketed in their locations, higher proportions of highly skilled workers, and better matching of digital technologies used for transformation. We explore micro-level measurement methods of corporate digital transformation, contributes to the literature on the economic consequences of digital transformation, and enriches the research on enterprise responses to financing constraints. The findings have important implications for promoting corporate digital transformation practices and for understanding coping strategies of different firms.