Digital Finance, Financing Constraint and Enterprise Financial Risk

Security and stability are crucial factors for maintaining sustained and high-speed economic growth. In the context of unprecedented changes in a century, keeping stable productivity-induced economic growth and reducing uncertainty risks are of vital significance for highquality economic development. Enterprises are the backbone to promote the growth of the real economy, and financial activities provide an indelible impetus to the growth of enterprises [1]. In reality, the unreasonable financing model and the mismatch between financial supply and demand have hindered the improvement of the quality and efficiency of China’s financial industry in serving the real economy [2].

The traditional financial sector is confronted with some structural problems due to a lack of its own conditions and technology. Therefore, when financing for enterprises, the so-called “liquidity stratification” of financial resources emerges, which primarily consists of three mismatches, namely, domain, attribute, and stage.

In the new era, traditional finance can solve the financial risk and financing constraints faced by enterprises through innovative integration with new technologies and other new things. China’s Fintech and Digital Financial Inclusion Development Report (2020) points out that the level of the Fintech industry in China has already ranked at the forefront of the world in China and the Fintech financing in China accounts for 52.7% of the global share. Since the launch of the Fintech Development Plan (2019–2021), banking-related Fintech companies have started to develop vigorously, and the Fintech Supervisory Sandbox has rapidly launched. China has benefited from an enormous market and new infrastructure, and the financial industry has accelerated the digitalization process. Meanwhile, the sector of digital finance is flourishing, which draws the attention of domestic and foreign scholars [3, 4]. At present, a large number of related literature studies have been made, but most of them focus on the relationship and mechanism between digital finance and total factor productivity, the influence on household financial market participation, and bank performance [5–7]. Some of them find that digital finance can reduce the risk of stock price collapse and enterprise risktaking [8, 9]. The aforementioned studies provide some theoretical basis and techniques for this paper to explore the relationship between digital finance and enterprise financial risk. However, there is still a lack of research on the actual impact of digital finance on enterprise financial risk. Further research on this issue has great theoretical significance and practical value as China’s economy enters a new normal.

The paper mainly aims to examine the influence of digital finance on enterprise financial risk and its mechanism. Moreover, it attempts to analyze whether digital finance corrects the distortion of traditional financial elements and whether it can effectively improve enterprise financial risk and further verify the inclusion and transmission mechanism of digital finance. On the one hand, the in-depth exploration of such issues is helpful to theoretically prove that digital finance can reduce the enterprise financial risk; on the other hand, it also provides empirical support for the policy-making of China’s financial supervision.

The extended definition of enterprise financial risk is the process in which the probability of enterprise financial distress is constantly expanding. Among them, financial distress is generally depicted as the situation when enterprises are unable to repay their debts. Financial risk derivation mainly comes from the changes of two internal factors, namely, the capital structure and the value creation ability of enterprises. The competitive environment and regulatory environment are external factors of enterprise value creation, naturally constraining or improving the changes in its financial risk. In addition, transaction constraints, information constraints, and political or administrative constraints can also cause enterprise managers to encounter obstacles when implementing their preferred policies. According to the classical Free Cash Flow Theory, debt financing certainly has the advantages of reducing free cash flow constraints and curbing agency [10]. In this regard, enterprise managers will release the signal of “a clean hand wants no washing” to the outside for the benefit of the enterprise’s development. It will be more inclined to make the decision to use financing. Without the support of financial markets and other systems, the production and operation of enterprises will be in a dilemma and then the financial risk of enterprises will more likely to fall into highlevel bankruptcy risks.

The financial inclusion policy aims to provide more equitable and convenient financial services for low-income and disadvantaged groups. Digital inclusive finance promotes inclusive finance through digital financial services, which can make full use of modern digital information technology, expand the scope of financial services, reduce the cost of financial services, enhance the convenience and penetration of financial services, and improve efficiency and level of financial services. From a microperspective, the development of digital inclusive finance can enable small, medium, and microenterprises that were originally located at the bottom of the economic pyramid to enjoy more financial services at lower costs. From a macroperspective, the development of digital inclusive finance can alleviate the contradiction between financial and economic structures and create favorable conditions for building a new development pattern in which domestic and international dual cycles promote each other.

Hsu et al. [11] argue that the financial element is a major element for microentities to carry out their business activities and the matching degree of financial supply can severely affect the progress of enterprise activities. However, China’s existing financial system still has some structural problems. High-quality development has been seriously restricted since traditional finance has not played its proper role. However, digital finance has a huge impact on traditional finance and real life. Gomber et al. [12] consider that digital finance can process big data at low cost and low risk with the support of technical tools such as the Internet, big data, and artificial intelligence, thus lowering the threshold of access to financial services for long-tail groups. At the same time, the high-quality development of digital finance also has the function of empowerment, and its technical tools can empower the development of enterprises, enable them to make optimal decisions, accelerate their development, and help them optimize their development path towards high-quality development [13].

First of all, theoretically speaking, digital finance is a new type of financial innovation which exerts extensive influence on real life and subverts the traditional financial system to some extent. Digital finance uses technologies such as artificial intelligence to establish a data warehouse by improving algorithms and evaluation mechanisms [14], construct a transparent and information-based credit system [15, 16], introduce innovative models or tools to enhance the efficiency of capital allocation in the financial sector [13, 17], and strengthen risk warning and management capabilities. However, digital finance can reduce spatial and temporal constraint, serve the fields that are difficult to cover by traditional finance [18], alleviate the mismatch of credit resources [19], and thus provide support for enterprises to reduce financial risk. Furthermore, as a key factor affecting the investment and cash flow of enterprises, financing constraint plays an important role in enterprise financial risk. The existing literature holds that financing constraints can reduce enterprise financial risk [20, 21] and digital finance can reduce information asymmetry, thus alleviating financing constraints. Then, financing constraints may be the mechanism of digital finance affecting financial risk. Finally, digital finance itself has the function of a financial accelerator [22] and also has the characteristics of improving efficiency and increasing risk probability. Because the industries, regions, and other individual natures of enterprises are significantly different, the influence of digital finance may also be significantly different, so efforts should also be made to explore the policy performance and differentiated effect of digital finance. Hence, it is more realistic to consider the heterogeneity when studying the role of digital finance in enterprise financial risk. On this basis, the following hypotheses are proposed:

With the rapid development of the digital economy, the changes brought about by digital finance have had a huge impact on the development of traditional finance. Meanwhile, enterprises are the lifeblood of China’s economy, and financial support for the development of enterprises is exceptionally vital for maintaining the smooth operation of the economy. Based on the data of A-share listed companies in Shanghai and Shenzhen stock markets from 2011 to 2020, this paper empirically explores the impact of digital finance on enterprise financial risk. The main conclusions are as follows. First, the development of digital finance can significantly reduce enterprise financial risk. It has significant characteristics of “hierarchy,” in which the depth of digital finance is more significantly conducive to reducing enterprise financial risk. Second, digital finance reduces enterprise financial risk by alleviating the financing constraint, which is a crucial mechanism for digital finance to reduce enterprise financial risk. Third, for enterprises with low debt levels and enterprises in the eastern region, digital finance plays a more significant and stronger role in reducing their financial risk. Fourth, considering the economic environment and other advantageous factors of municipalities, Beijing, Tianjin, Shanghai, and Chongqing are excluded, and the conclusion is still robust. Given that the triple fixed-effect model is “flexible” and is not strong enough in endogeneity control, the high-level joint fixed-effect model of “year-industryregion” is adopted and the conclusion is still robust. Furthermore, Bartik’s concept of instrumental variables is adopted and set for regression, and the conclusion is still robust. The above-mentioned aspects all show that the research conclusion of this research is robust.

The policy implications of the conclusions are as follows: On the one hand, the rapid development of digital finance provides stable financial support for enterprises and lowers the market access threshold, which is of great significance for the high-quality development of SMEs. Hence, the development of digital finance should be accelerated to make it better serve the real economy. On the other hand, the transparent big technology credit mechanism of digital finance can precisely identify the source and direction of loans, thereby facilitating the supervision and establishment of risk warning mechanisms. Therefore, it is necessary to strengthen financial supervision and improve the risk identification system to maintain financial stability. Furthermore, it improves the digital economy development policy and strengthens the construction of digital financial infrastructure. It promotes the development of digital inclusive finance in various regions, especially in the central and western regions, northeastern regions, and areas with poor digital financial inclusion. It activates the economic development potential of small- and medium-sized enterprises and promotes the high-quality development of the real economy by improving the financial sustainability of small- and medium-sized enterprises.

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