Abstract
The impact of digital transformation, a profound organizational change within firms, on corporate capital structure is not well understood. Using a sample of publicly listed companies from 2010 to 2021 in China, we document that digital transformation significantly boosts corporate debt financing, tilting firm's capital structure towards debt. Further analysis shows that digital transformation improves firm operating performance and reduces bankruptcy risk, which is consistent with trade-off theory. The positive effect of digital transformation on debt financing is more pronounced when firms are with more developed markets, better legal environments, and are non-state-owned.
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