Can enterprise digital transformation reduce the reliance on bank credit? Evidence from China

Academics are inconclusive on whether enterprises' digital transformation can reduce their reliance on bank credit. We examine this question using a Chinese sample of 2325 A-share-listed companies from 2007 to 2021, finding a significant negative correlation between a firm's digital transformation and reliance on bank credit; the results remain robust after a series of endogeneity tests. Digital transformation alleviates bank credit dependence mainly by easing firms' financing constraints and reducing information asymmetry. Specifically, the alleviation effect of enterprise digital transformation is stronger among enterprises with private ownership and smaller asset sizes. In addition to the nature of firms, increased competition in the banking sector and a favorable business environment contribute to curtailing bank credit dependence. This paper's findings point to companies' digital transformation agenda, confirming that financial development supports economic growth.