Does firms’ digitalization affect trade credit provision?

Abstract

ABSTRACT This study examines the relationship between firms’ digitalization and trade credit provision using data on Chinese A-share listed enterprises from 2007 to 2020. We find that digital transformation significantly increases trade credit provision. The mechanism test shows that digital transformation directly reduces information asymmetry and enhances financial stability, thereby promoting trade credit provision. Furthermore, our heterogeneity analysis suggests that the positive effect of digitalization on trade credit provision is more pronounced for firms that are large and in the non-tech industries, and for firms that are in regions with high levels of digital finance development. Finally, digital transformation positively affects firm value and trade credit financing, indicating that digital transformation enhances the financing capacity of enterprises. This study not only reveals the economic consequences of firms’ digitalization on trade credit provision, it also provides a useful perspective to explain how the firms’ digitalization can enable the development of real economy and industry.