Does digital transformation enhance financial flexibility?

Defang Ma, Jindong Wang, Bo Zeng, Ying Liu and Yuze Xie

International Review of Financial Analysis, 2025, vol. 106, issue C

Abstract: Under the backdrop of intensifying economic downturn pressures and the enabling potential of digital economy, whether firms can enhance their financial flexibility through digital transformation warrants scholarly attention. This study examines the influence of digital transformation (DT) on firm financial flexibility using a sample of Chinese A-share listed companies for the period 2008 to 2022. We find that DT is positively associated with firm financial flexibility. Specifically, DT can enhance financial flexibility by improving information transparency and the quality of internal controls. The heterogeneity analysis reveals that the impact of DT on financial flexibility is more pronounced in the eastern and central regions and in the non-manufacturing industry. As a result, firms should leverage information transparency and internal control quality to build a digital ecosystem and accelerate the process of digital transformation. Governments should sustain their digital transformation efforts and seize the non-manufacturing sector as a key focus point. This study can help listed companies shift from investment-driven to innovation-driven digital transformation and promote the optimization of corporate capital structures. This study also identifies mechanisms by which digital transformation affects financial flexibility.

Keywords: Digital transformation; Financial flexibility; Information transparency; Internal control quality (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:106:y:2025:i:c:s1057521925005848

DOI: 10.1016/j.irfa.2025.104497

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