Abstract
From the perspective of financial constraint, this paper constructs a mathematical model to analyze the impact of digital financial development on firm exit probability. The relationship between digital finance and firm exit was tested empirically based on the industrial firm data in 2011–2013. The results show that digital financial development significantly suppresses firm exit probability. Mechanism analysis suggests that digital financial development can ease the information asymmetry of the credit market, facilitate the credit acquisition of firms, and alleviate the constraint on corporate financing, thereby reducing the probability of firm exit. This paper provides the theoretical basis and empirical evidence for controlling firm exit from the angle of digital finance development.
Highlights
In recent years, digital finance has been in vogue
Digital finance refers to the new financial business model under which the traditional financial institutions and Internet firms realize financing, payment, and investment with the Discrete Dynamics in Nature and Society aid of digital technology [11]
During credit approval and decision-making, financial institutions need to apply big data and other techniques to mine the non-financial information related to firm operation and evaluate the operation state and default risk of firms. is practice could greatly reduce the information asymmetry in the credit market
Summary
Drawing on Buera and Shin’s model [14], the influence of digital finance development on firm exit was analyzed under the assumption that productivity varies from firm to firm. Each entrepreneur deposits his/her individual wealth a into a bank and rents production equipment k from the bank. K(a, z) is the increasing function of z: the greater the firm productivity, the higher the upper limit on loan amount. K(a, z) is the increasing function of a: the greater the entrepreneur’s deposit in the bank, the higher the upper limit on the loan amount. Under the given rent rate R, interest rate, and upper limit on loan amount k, the entrepreneur chooses the investment amount k to maximize the firm profit:. When z ≥ r + δ, the firm can get positive profit and choose to enter the market; in this case, the firm investment equals the upper limit on loan amount k. Suppose there exists an upper limit zm on productivity that satisfies (1 − φ) (1 − δ) + r + δ − φz > 0 for any φ, such that k(a, z) is always positive. en, the firm productivity falls in the value range of [0, zm]. e loan amount of each firm can be expressed as follows:
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