digital finance

Finance research letters

• This paper empirically examines the effect of inefficient corporate investment on digital transformation. • We find that inefficient investment is not conducive to improving digitalization. • We find that the greater the financing pressure on a company, the worse the digital transformation. • To combat inefficient investment, enterprises should reduce financing constraints, and improve risk prevention mechanisms. This paper empirically examines the effect of inefficient corporate investment on digital transformation, using Chinese listed companies from 2007-2019 as a sample, and finds that inefficient investment is not conducive to improving digitalization. We find that the greater the financing pressure on a company, the worse the digital transformation, and financing constraints exacerbate this negative effect. Among state-owned, private and highly digitalized companies, the negative impact of inefficient investment on digital transformation intensifies as the pressure of financing constraints increase. To combat inefficient investment, enterprises should optimize their investment structure, reduce their financing constraints, and improve their risk prevention mechanisms.

Inefficient investment and digital transformation: What is the role of financing constraints?