More Money, More Digital? The Impact of Public Financial Grants on Digital Transformation in SMEs

Abstract

In this paper, we theoretically and empirically analyse the impact of state financial grants on the digital transformation of small and medium-sized enterprises (SMEs). Building on a behavioral perspective, we hypothesize that state financial grants will nudge companies’ digital transformation regardless of the size of the grant. We collected data from 1,935 SMEs including funded and non- funded companies, which applied for a state grant program in a German federal state. Our results suggest that state financial grants have a significant positive impact on the progress of the digital transformation of companies that received state grants; however, an increase of the state grant amount does not lead to more progress in the digital transformation of companies. Our findings have important implications for research on digital transformation in the context of SMEs as well as for public policy research regarding the firm-level effects of nudging policies.