Can Digital Finance Help Firms to Reduce Their Over-Indebtedness? Evidence from Chinese Listed Companies

36 Pages Posted: 12 Dec 2023

See all articles by Asad Nisar

Asad Nisar

Central University of Finance and Economics

Liu Xiangli

Central University of Finance and Economics

Kai Wu

Central University of Finance and Economics

Syed Sadaqat Ali Shah

Central University of Finance and Economics

Dr Hafiz Muhammad Arslan

Beijing Institute of Technology

Abstract

A long-standing firm over-indebtedness can result in firm default. Understanding firms’ over-indebtedness has crucial academic and practical significance. Using a sample of Chinese A-listed companies from 2012 to 2021, this paper employs a fixed-effect panel model to show the empirical evidence of the influence of digital finance on firms’ over-indebtedness. The digital inclusive finance index developed by PKU-DFIIC is used to measure digital finance development. The baseline results show that digital finance development significantly reduces firms’ over-indebtedness. The results remain robust across a series of robustness tests. The intrinsic mechanism suggests that digital finance reduces firms’ over-indebtedness by alleviating financing constraints and improving stock liquidity. The heterogeneity results show that digital finance has greater inhibitory effects for firms with large size, strong corporate governance, private ownership, non-high tech, and competitive industry, and location in eastern regions and high marketization areas. The findings of this paper offer considerable practical implications to reveal the impact of digital finance at the micro level and improve the quality of decision-making for managers, investors, analysts, regulators, and financial institutions.

Keywords: Digital finance, financing constraints, over-indebtedness, stock liquidity, excessive leverage

Suggested Citation

Nisar, Asad and Xiangli, Liu and Wu, Kai and Shah, Syed Sadaqat Ali and Arslan, Dr Hafiz Muhammad, Can Digital Finance Help Firms to Reduce Their Over-Indebtedness? Evidence from Chinese Listed Companies. Available at SSRN: https://ssrn.com/abstract=4661257 or http://dx.doi.org/10.2139/ssrn.4661257

Asad Nisar

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Liu Xiangli

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Kai Wu

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Syed Sadaqat Ali Shah (Contact Author)

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Dr Hafiz Muhammad Arslan

Beijing Institute of Technology ( email )

5 South Zhongguancun street
Center for Energy and Environmental Policy Researc
Beijing, 100081
China

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