Can the digital transformation of finance companies within business groups alleviate the financing constraints of enterprises within the same group?

ABSTRACT

This paper examines the influence of digital transformation in finance companies within business groups on the financing constraints of enterprises. In this paper, we demonstrate that the digital transformation of finance companies within business groups can markedly alleviate the financing constraints of enterprises within the same group through the ‘information effect’. Specifically, the digital transformation of finance companies can reduce the information asymmetry between the supply and demand sides of funds and thus help to alleviate the financing constraints of enterprises in the business group. Our findings remain robust after conducting various tests, such as replacing the dependent variables, excluding other policy disruptions, and employing a placebo test. Heterogeneity analysis indicates that the digital transformation of finance companies has a greater impact on the financing constraints of subsidiaries within business groups that have a higher proportion of shares held by the ultimate controller. The alleviating effect of digital transformation on the financing constraints of enterprises under their control is stronger for finance companies that originally had less prominent roles in lending, entrusted, and guaranteed businesses.

KEYWORDS:

• Business groups
• finance companies
• digital transformation
• financing constraints

JEL CLASSIFICATION:

• G32
• G23
• G14

Disclosure statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Notes

¹ We select a business group and analyse its ownership network to provide a clearer demonstration of the business group identification process. Based on the ownership network information, Mahle Valve Drive (Hubei) Co., Ltd., Mahle Engine Components (Yingkou) Co., Ltd., and Mahle Engine Components (Chongqing) Co., Ltd. all have Mahle GmbH as their ultimate controlling entity. Consequently, these three companies are identified as members of the same business group. Appendix A illustrates a specific ownership network..

² Due to delays in data collection and organization, the Yearbook of Finance Companies of Chinese Business Groups (2011–2017) reports data on the capital concentration of finance companies from 2010 to 2016.

Additional information

Funding

Henan Province Key Research and Development and Promotion Special Project (Soft Science Research, No. 232400410165).