Manufacturing enterprise digital transformation, financial flexibility, and financial risk—Evidence from China

Zhongsheng Zhou and Jingyao Zhang

International Review of Financial Analysis, 2025, vol. 104, issue PA

Abstract: In the digital economy era, understanding how manufacturing enterprises leverage digital technology to transform, upgrade, and subsequently enhance risk management is a crucial theoretical and practical issue. Utilizing data from Chinese A-share listed manufacturing companies in Shanghai and Shenzhen from 2007 to 2023, we conduct a theoretical analysis and empirical test of the preventive effect of financial flexibility on the financial risks associated with digital transformation. The study finds that, compared to firms lacking financial flexibility, financially flexible firms can significantly mitigate the financial risks of digital transformation, which are exacerbated by substantial technological and human investments. The mitigating effect is especially pronounced among private and small firms, as well as those in non-high-tech industries and facing economic policy uncertainty. Furthermore, manufacturing companies are better equipped to mitigate the financial risks of digital transformation by maintaining debt flexibility than cash reserves. Finally, the preventive role of financial flexibility ultimately manifests in improved enterprise performance in subsequent years. This paper contributes to the literature on financial flexibility and provides valuable insights for firms' digital transformation strategies and risk management practices, offering both theoretical and practical significance.

Keywords: Manufacturing enterprise; Digital transformation; Financial flexibility; Financial risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003667

DOI: 10.1016/j.irfa.2025.104279

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