Digital transformation and financing constraints of SMEs: evidence from China

It is known that digital transformation can sharpen the competitive edge of SMEs, yet the relationship between digital transformation and the financing of SMEs only receives little attention. Based on the data of Chinese companies listed on SME board from 2010 to 2020, this paper empirically examines the impact of digital transformation on the financing constraints of SMEs as well as its mechanism. The study finds that digital transformation significantly eases the financing constraints of SMEs, and the conclusion remains valid after considering endogeneity issues and conducting robustness tests. The mechanism analysis manifests that SMEs improve the quality of external information disclosure through digital transformation, thereby alleviating financing constraints. In addition, the impact of digital transformation on the financing constraints of SMEs demonstrates prominent heterogeneity. The mitigation effect of digital transformation is more pronounced in areas where digital financial is well developed, in state-owned enterprises, high-tech enterprises and long-term oriented enterprises. In the context of SMEs, this paper reveals the relationship between digital transformation and corporate financing, enriching the studies on the organizational performance effects of digital transformation.