Nisa , Asad; Li, Haolin; Shah, Syed Sadaqa Ali; Ra ique, Rabia
A icle
Regional digi al inance and ine icien co po a e
in es men s: Empi ical e idence om China
Cogen Economics & Finance
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Sugges ed Ci a ion: Nisa , Asad; Li, Haolin; Shah, Syed Sadaqa Ali; Ra ique, Rabia (2024) : Regional
digi al inance and ine icien co po a e in es men s: Empi ical e idence om China, Cogen
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Regional digi al finance and inefficien co po a e
in es men s: Empi ical e idence om China
Asad Nisa , Haolin Li, Syed Sadaqa Ali Shah & Rabia Rafique
To ci e his a icle: Asad Nisa , Haolin Li, Syed Sadaqa Ali Shah & Rabia Rafique (2024)
Regional digi al finance and inefficien co po a e in es men s: Empi ical e idence om China,
Cogen Economics & Finance, 12:1, 2390943, DOI: 10.1080/23322039.2024.2390943
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FINANCIAL ECONOMICS | RESEARCH ARTICLE
Regional digi al inance and ine icien co po a e in es men s:
Empi ical e idence om China
Asad Nisa
a
, Haolin Li
b
, Syed Sadaqa Ali Shah
a
and Rabia Ra ique
a
a
School o Finance, Cen al Uni e si y o Finance and Economics, Beijing, PR China;
b
Fa me School o Business, Miami
Uni e si y, Ox o d, OH, USA
ABSTRACT
Using da a o 1,457 Chinese A-sha e lis ed en e p ises om 2012 o 2021, his s udy
in es iga es he impac o egional digi al inance de elopmen on ine icien co po -
a e in es men s. Da a o co e explana o y a iables, including Digi al Finance and
B ead h, we e ob ained om he Peking Uni e si y Digi al Finance Resea ch Cen e ,
while i m-le el a iables’da a we e sou ced om CSMAR. The baseline esul s show
ha egional digi al inance de elopmen signi ican ly educes ine icien co po a e
in es men s in China. These indings a e u he suppo ed by a se ies o obus ness
es s. Addi ionally, we iden i y wo mechanisms h ough which egional digi al inance
de elopmen mi iga es ine icien co po a e in es men s: alle ia ing inancing con-
s ain s and inc easing cash low ci cula ion. The mi iga ion e ec s o digi al inance
a e mo e p onounced in s a e-owned i ms, i ms wi h s ong go e nance, i ms
loca ed in wes e n egions, i ms in a eas wi h a high deg ee o ma ke iza ion, and
i ms in inno a i e and compe i i e indus ies. O e all, his s udy o e s signi ican
insigh s o de eloping coun ies, sugges ing ha egional digi al inance de elop-
men can enhance i ms’ esou ce alloca ion e iciency.
IMPACT STATEMENT
By analyzing da a o Chinese A-sha e lis ed i ms o e 2012-2021, he s udy disco e s
ha digi al inance alle ia es inancing cons ain s and enhances cash low ci cula ion,
he eby op imizing esou ce alloca ion. This esea ch highligh s he s a egic ole o
digi al inance in os e ing mo e e icien in es men decisions, wi h b oade implica-
ions o economic de elopmen and policy-making in de eloping coun ies.
ARTICLE HISTORY
Recei ed 30 Ma ch 2024
Re ised 3 Augus 2024
Accep ed 6 Augus 2024
KEYWORDS
Digi al inance; ine icien
co po a e in es men s;
unde -in es men s; o e -
in es men s; inancing
cons ain s; cash low
ci cula ions
SUBJECTS
Finance; Economics;
Business, Managemen and
Accoun ing
1. In oduc ion
Digi al inance wi h cu ing-edge echnologies has he po en ial o p omo e inancial inclusion, inclusi e
g ow h, and e iciency o inancial se ices (Ozili, 2018;Siddik&Kabi aj,2020). The ad anced o m o in o ma-
ion echnology has pe mea ed he inancial indus y, imp o ing he accu acy and e iciency o inancial sup-
po , expanding he a ailabili y and scope o inancial se ices, and accele a ing he expansion o inancial
business (Makina, 2019;Mo gan,2022). Consequen ly, en e p ises o e e y size a e de eloping digi iza ion s a -
egies o e amp hei cu en ope a ional p ocesses and s uc u es, and o op imize hei compe i i eness
(Chen e al., 2019). Employing digi al inance, which includes se ices like digi al mobile paymen s, online lend-
ing, and online inancial se ices, has gained p ominence o add ess co po a e and indi idual needs.
Digi al inance wi h i s mic o-pe spec i e allows i ms o inc ease co po a e isk- aking (Tian e al., 2022),
boos co po a e inno a ion (Zhang e al., 2023), educe bank up cy isk (Ji e al., 2022), enhance co po a e
g een in es men s (Ding e al., 2023), and allow i ms o make e icien capi al alloca ion decisions (Fan &
Chen, 2022). I alle ia es inancing cons ain s (Li e al., 2023), educes in o ma ion asymme y (Kong e al.,
2022), and opens new inancing channels o und business ope a ions (Han & Gu, 2021). In es men is he
CONTACT Rabia Ra ique [email p o ec ed] School o Finance, Cen al Uni e si y o Finance and Economics, 39 College Sou h
Road, Haidian Dis ic , Beijing 100081, PR China.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2390943
h ps://doi.o g/10.1080/23322039.2024.2390943
undamen al pilla o g ow h, de elopmen , and alue expansion o any en e p ise, and he e a e se e al
ic ional ac o s, including agency cos s, inancing cons ain s, in o ma ion asymme y, and cogni i e biases
o decision make s, end o in luence in es men beha io s o manage s, and lead o ine icien co po a e
in es men s (Almeida & Campello, 2007; Childs e al., 2005; Fazza i e al., 1988; McDonald & Siegel, 1986;
Mye s & Majlu , 1984;Wang,2010). Ine icien co po a e in es men s a e classi ied as o e -in es men s and
unde -in es men s. O e -in es men s occu when manage s alloca e cash lows o hese p ojec s which ha e
nega i e ne p esen alue, while unde -in es men s occu when manage s neglec hose p ojec s wi h posi-
i e ne p esen alue. These bo h o ms o in es men s e lec ine iciency in esou ce alloca ion and he e-
o e migh no con ibu e o inc easing co po a e alue. Howe e , exis ing li e a u e lacks conclusi e
e idence ha esol ing inancing cons ain s o agency p oblems can de ini i ely sol e in es men ine i-
ciency. T adi ional inance alloca es esou ces ine icien ly because o in o ma ion asymme y, inancing con-
s ain s, and ma ke impe ec ions (Fan & Chen, 2022). In his con ex , digi al inance, as an eme ging
inancial de elopmen ool, can help i ms educe ine icien in es men s by educing in o ma ion asymme y
and easing inancing cons ain s.
By employing digi al echnologies, digi al inance gains a mo e e icien in eg a ion o use in o ma ion
compa ed o adi ional inance, he eby helping o dec ease he in o ma ion asymme y ha exis s be ween
pa ies in ol ed in a c edi ansac ion (Yao & Yang, 2022). These echnological inno a ions can help i ms
de e mine hei in es men needs; digi al inance boos s co po a e inno a ions, which include bo h echno-
logical and non- echnological inno a ions (Khan e al., 2023). In his way, digi al inance en iches i ms wi h
po en ial in es men oppo uni ies and allows hem o selec he mos iable in es men choices, hus
educing ine iciency in co po a e in es men s wi h he help o digi al ools (Puschmann, 2017). Mos o he
p e ious s udies on digi al inance de elopmen ocused on i s mac o-le el ou comes, such as i s in luence
on inancial s abili y (Risman e al., 2021), household consump ion (Li e al., 2020), and inancing cons ain s
(Chen & Zhang, 2021). The e a e only a ew s udies ocused on he mic o-le el bene i s o digi al inance
(Ding e al., 2022;Jie al.,2022;Konge al.,2022;Tian&Shao,2023); howe e , none o hese ocused on
in es iga ing he ole o digi al inance in educing ine icien co po a e in es men s. So, ecognizing he
bene i s deli e ed by digi al inance de elopmen and he exis ing esea ch gap, his s udy aims o achie e
hese esea ch objec i es: (1) o wha ex en digi al inance de elopmen educes ine icien co po a e in es -
men s; (2) how digi al inance de elopmen alle ia es inancing cons ain s and inc eases cash low ci cula-
ions o discou age ine icien co po a e in es men s; and (3) how i m-le el, indus y-le el, and egional-le el
cha ac e is ics in luence he impac o digi al inance de elopmen on ine icien co po a e in es men s.
Analyzing he impac o digi al inance on ine icien co po a e in es men s is signi ican ly magni ied
when conside ing China’s dis inc posi ion as an economic powe house wi h a supe icial inancial ecosys em.
The po en ial impac o digi al inance in impeding ine icien in es men s becomes a c ucial ques ion wi h
a - eaching implica ions when he Chinese go e nmen is s ee ing he coun y owa d a ma ke -o ien ed
economy. China, as he wo ld’s la ges expo e wi h a sha e o 18% o global expo s, has a majo ole in
he global supply chain (Lunness, 2023). The p oduc ion lines and ac o ies o China, o en e med as he
‘wo ld’s ac o y,’a e wo en deeply in o he global supply chain ab ic. So, any business dis ess challenge in
he o m o ine icien in es men s o Chinese i ms can dis up he global supply chain. The ipple e ec s o
ine icien in es men s would send shockwa es h ough global supply chain dis up ions in he o m o
impac ing e e y hing om he a ailabili y o aw ma e ials o consume goods. By conside ing he impo -
ance o his domain, his pape examines how digi al inance can se e as a sa egua d agains he dis up-
ions ha could h ea en he smoo h ope a ions o he global supply ecosys em.
Theo e ically, digi al inance wi h i s comp ehensi e impac (L. Liu e al., 2022), may help i ms o
educe ine icien in es men s h ough di e en possible mechanisms. The e a e wo mechanisms con-
side ed by his pape h ough which digi al inance can educe ine icien in es men s: easing inancing
cons ain s and helping cash low ci cula ions. Fi s , digi al inance may educe inancing cons ain s and
help en e p ises o ex end a i m’s access o capi al. Via pla o ms o c owd unding, pee - o-pee lending,
and digi al paymen sys ems, i ms may gain as e and mo e a o dable access o unding. Thus, by alle-
ia ing he inancing cons ain s o i ms (Li e al., 2023), digi al inance acili a es an e icien esou ce
alloca ion pa adigm and allows hem o in es in p o i able in es men oppo uni ies. The second mech-
anism by which digi al inance educes ine icien in es men s is o enhance cash low ci cula ions wi hin
he business p ocess and accele a e co po a e inancializa ion (Jiang e al., 2022). Fi ms adop ing digi al
2 A. NISAR ET AL.
inance echnologies become mo e e icien a ci cula ing cash in a manne ha gene a es be e
e u ns. I acili a es he apid mo emen o unds o enhance liquidi y and enables hem o espond
e icien ly o ope a ional needs and in es men oppo uni ies.
This pape uses ine icien in es men da a o Chinese lis ed i ms and he “Peking Uni e si y Digi al
Inclusi e Finance Index”(Guo e al., 2020), o conduc an empi ical in es iga ion on he abo e issue. The
benchma k esul s sugges ha digi al inance de elopmen signi ican ly educes he ine icien co po a e
in es men s o Chinese lis ed companies. Speci ically, an inc ease o 1% in digi al inance leads o a educ-
ion in ine icien in es men by 3.2465%. The esul s emain obus a e using he 2SLS endogenous es ,
eplacing he explana o y a iable, and using a one-lagged pe iod o he explana o y a iables. Mechanism
analysis shows ha digi al inance educes ine icien co po a e in es men s by easing inancing cons ain s
and inc easing cash low ci cula ions. Fi m-le el he e ogenei y analysis shows ha digi al inance has g ea e
inhibi o y e ec s on i ms wi h SOE owne ship igh s and s ong go e nance. Regional-le el he e ogenei y
analysis shows ha i ms loca ed in he wes e n egion and in a eas wi h a high ma ke iza ion deg ee a e
mo e exposed o he bene i s o digi al inance o educe hei ine icien in es men s. Indus y-le el he e o-
genei y analysis shows he e a e g ea e inhibi o y e ec s o digi al inance o i ms in inno a i e indus ies
and less-hea ily pollu ed indus ies compa ed o i ms in non-inno a i e and hea ily pollu ed indus ies.
This s udy makes signi ican con ibu ions o he exis ing li e a u e on he mic o-le el e ec s o digi al
inance. Fi s , i b idges he esea ch gap by p esen ing mic o-le el empi ical e idence on how egional
digi al inance de elopmen in luences ine icien co po a e in es men s, an a ea ha is ela i ely unex-
plo ed compa ed o he mac o-le el ou comes o egional digi al inance de elopmen (Chen e al.,
2019; Chen e al., 2021; Ding e al., 2022). Second, his s udy p o ides a nuanced unde s anding by
examining he e ec s o egional digi al inance de elopmen on he classi ica ion o ine icien co po -
a e in es men s in o unde -in es men s and o e -in es men s, a sub-classi ica ion o ine icien in es -
men s unexplo ed in he li e a u e (L & Xiong, 2022). Thi d, his s udy in es iga es he channels
h ough which digi al inance a ec s co po a e in es men ine iciencies, such as alle ia ing inancing
cons ain s and imp o ing cash low ci cula ion (Li e al., 2023; Wu & Huang, 2022). Fou h, by inco po-
a ing i m-le el, egional-le el, and indus y-le el he e ogenei y analyses, his s udy o e s deepe
insigh s in o how he bene i s o egional digi al inance a y ac oss i ms o di e en sizes, owne ship
s uc u es, go e nance s eng hs, and hose in high ma ke iza ion egions, inno a i e indus ies, and
compe i i e sec o s (Guo e al., 2020; Huang e al., 2023). Las , his s udy unde sco es he po en ial o
digi al inance as a s a egic ool o aid China’s ansi ion o a ma ke -o ien ed economy, wi h signi ican
implica ions o he global supply chain and economic de elopmen (Tang e al., 2020).
The emaining s uc u e o his pape is as ollows: Sec ion 2 p esen s he heo e ical discussion and de el-
ops some hypo heses. Sec ion 3 discusses he esea ch design, including he empi ical model, main a iables,
a iable measu emen , da a sou ces, and desc ip i e s a is ics. Sec ion 4 p esen s he baseline eg ession
esul s, a se ies o obus ness es s, mechanism analysis es s, and he e ogenei y es s a he i m-le el, indus-
y-le el, and egional-le el. Sec ion 5 concludes he pape wi h po en ial policy implica ions.
2. Theo e ical analysis and hypo heses de elopmen
The e a e signi ican social and economic de elopmen s led by digi al inance, as he c ucial elemen o
boos he digi al economy (Gold a b & Tucke , 2019). Ine icien co po a e in es men s as a business dis ess
challenge ha e gained much a en ion om indus y and academia, and a e conside ed a ba ie o eco-
nomic g ow h. The People’s Bank o China has indica ed ha i is necessa y o use digi al inance o op imiz-
ing he c edi p ocess, alle ia ing inancing p oblems, enhancing he inancial sys ems’abili y, and educing
i ms’ inancing cos s (Fulle on & Mo gan, 2022). On he basis o hese g ounds, we may a gue ha digi al
inance can ease inancing cons ain s and discou age ine icien co po a e in es men s.
In a pe ec ma ke economy, he weigh o ma ginal bene i s and cos s de e mines in es men deci-
sions. S ein (2003) s a es ha he a ailabili y o in es men op ions in luences co po a e in es men pe -
o mance. Howe e , agency cos s (Childs e al., 2005; Wang, 2010), in o ma ion asymme y (Fazza i e al.,
1988; Mye s & Majlu , 1984), and inancing cons ain s (Almeida & Campello, 2007; Hi h & Viswana ha,
2011; McDonald & Siegel, 1986) may lead i ms o make ine icien in es men s. Digi al inance, wi h i s
abili y o elimina e spa ial and empo al ba ie s, educes in o ma ion asymme y (Tian & Shao, 2023),
COGENT ECONOMICS & FINANCE 3
and alle ia es inancing cons ain s (Albe & Dabou , 2020; Gombe e al., 2017; Khan e al., 2018).
Addi ionally, Fin- ech boos s co po a e inno a ion in he o m o echnological and non- echnological
inno a ions (Chen e al., 2019; Ding e al., 2022). These echnological inno a ions assis i ms in iden i y-
ing hei in es men needs, en iching hem wi h a a ie y o a ailable in es men oppo uni ies, and
encou aging hem o selec mo e ad an ageous oppo uni ies wi h high in es men alue (Puschmann,
2017; Xu e al., 2023), he eby inc easing co po a e in es men e iciency. So, d awing on in o ma ion
asymme y heo y, i may be a gued ha digi al inance educes in o ma ion asymme y o help i ms
make well-in o med decisions, and hus educes ine icien co po a e in es men s (Tian & Shao, 2023).
Digi al inance de elopmen has a p o ound impac on co po a e in es men decisions, and hus
po en ially leads o a educ ion in he olume o ine icien co po a e in es men s. Al-Smadi (2023) sug-
ges s ha digi al inance de elopmen enhances inancial inclusion and inc eases access o capi al,
which can u he educe in o ma ion asymme y and imp o e in o ma ion e iciency. Howe e , his
inc eased access o unds may also encou age i ms o unde ake excessi e in es men s due o man-
age ial o e con idence o misalloca ion o esou ces (Fan & Chen, 2022). Empi ical s udies suppo his
dual e ec , indica ing ha while digi al inance may s eamline inancial ope a ions and inc ease capi al
alloca ion e iciency, i may simul aneously esul in o e in es men o unde in es men depending on a
i m’s go e nance and co po a e s uc u e (Lin e al., 2023). D awing on he heo e ical amewo k
explained by in o ma ion asymme y heo y and he dual e ec o digi al inance p esen ed by p io
empi ical s udies, he e is a need o in es iga e he impac s o digi al inance de elopmen on ine icien
co po a e in es men s, so we p opose he ollowing hypo hesis;
H
1
: Digi al inance educes ine icien co po a e in es men s o Chinese lis ed i ms.
This pape pos ula es ha digi al inance eases i ms’ inancing cons ain s, op imizes hei inancing
access, and hus educes hei ine icien in es men s. Financing cons ain s o i ms can be in o m o
limi ed access o ex e nal capi al, which lead o high cos s and s ingen bo owing condi ions, imposed
by adi ional inancial ins i u ions (Kaplan & Zingales, 1997). Ine icien co po a e in es men s a e di -
ec ly linked wi h he unc ioning o capi al ma ke s and c edi ma ke s (Beck & Demi guc-Kun , 2006). In
o he wo ds, i can be s a ed ha i a i m aces a und de iciency ha hampe s i s ope a ions, i mo es
owa d ex e nal inancing, which incu s high cos s and ba ie s. The e o e, inancing cons ain s a e sig-
ni ican ba ie s p e en ing i ms om ob aining low-cos ex e nal inancing, which consequen ly leads
hem o ine icien in es men s (B own & Pe e sen, 2009). The digi al inance sys em in oduces new
inancing channels which p omo e ai ma ke compe i ion and educe in o ma ion asymme y be ween
all ma ke pa icipan s (Qu & Zhu, 2023). Digi al inance o e comes he issues associa ed wi h adi ional
inance se ices ha a e no inclusi e enough, and helps i ms make imely decisions on he basis o
abundan in o ma ion a ailabili y.
Digi al pla o ms in oduced by digi al inance u ilize big da a analy ics o assess he c edi wo hiness
o i ms mo e accu a ely, he eby educing in o ma ion asymme y be ween bo owe s and lende s
(Chen & Yoon, 2022). This imp o emen in c edi assessmen p ocesses allows e en small and medium-
sized en e p ises (SMEs) o acqui e necessa y unds a lowe cos s, which migh no be o e ed by ad-
i ional banking sys ems (Li e al., 2020). J. Liu e al. (2022) demons a e ha digi al inance de elopmen
os e s a mo e compe i i e lending en i onmen , encou aging adi ional banks o inno a e and mi iga e
hei bo owing cos s. The apid de elopmen o digi al inance in China has been ins umen al in
enhancing inancial inclusion and educing egional dispa i ies in inancing access (Guo e al., 2020). By
alle ia ing inancing cons ain s, digi al inance helps i ms unde ake p o i able in es men s ha hey
migh ha e o he wise missed, he eby educing he p e alence o ine icien co po a e in es men s
(Li e al., 2021). D awing on hese iews, his pape p oposes ha digi al inance imp o es i ms’access
o unds and educes ansac ion cos s, he eby helping hem o make mo e e icien in es men
decisions and cu b ine icien co po a e in es men s. The e o e, we pos ula e his hypo hesis;
H
2
: Digi al inance educes ine icien co po a e in es men s by alle ia ing inancing cons ain s.
Digi al inance enables i ms o quickly access unds, allowing hem o secu e unds acco ding o hei
in es men needs by abso bing social capi al in o inancing ma ke s (Tang e al., 2020). Thus, wi h digi al
inance, i ms a e no es ic ed o in e nal capi al ese es, as he e is a possibili y o ob ain ma ke
4 A. NISAR ET AL.
capi al p omp ing hem o inc ease hei in es men s o enhance in es men pe o mance (Han & Gu,
2021). Digi al inance can aid i ms in op imizing capi al alloca ion e iciency and enhancing con ol o e
in es men oppo uni ies by inc easing cash low ci cula ions. I imp o es in e nal capi al adequacy and
encou ages an abundance o cash lows which p o ide a s able sou ce o unding (L. Liu e al., 2022), o
i ms o ein es and cu b ine icien in es men s. F ee cash low heo y a gues ha easy access o cash
leads o was e ul spending; digi al inance s eamlines inancing p ocesses and imp o es anspa ency o
cash lows (Dhumale, 2003). Digi al inance, wi h da a analy ics ools, can help i ms alloca e cash unds
adequa ely, moni o in es men pe o mance, and op imize cash ein es men s in a imely manne .
Thus, d awing on hese heo e ical g ounds, we p opose his hypo hesis;
H
3
: Digi al inance educes ine icien co po a e in es men s by inc easing cash low ci cula ions.
3. Resea ch design
3.1. Empi ical model
This pape es s he e ec o digi al inance on ine icien co po a e in es men s by using he deg ee o
ine icien in es men p esen ed by p e ious li e a u e (Biddle e al., 2009; Chen e al., 2016; Richa dson,
2006). The basic empi ical model is cons uc ed as:
InIn i ¼b0þb1DgF i þbnCon ols i þ iþk þcjþeijn (1)
whe e i, , and j ep esen i m, yea , and indus y espec i ely. InIn i as he dependen a iable deno es
he deg ee o i m’s ine icien in es men s. DgF, as he co e explana o y a iable ep esen s digi al
inance index o he ci y in which i m is egis e ed. Con ols deno es he se o con ol a iables, while e
ep esen s he e o e m. This s udy ixed he i m, indus y, and yea e ec s in benchma k eg ession
model, and i mainly conside s he i m-speci ic cha ac e is ics as he con ol a iables. Mo eo e ,
egional-le el a iables ha e been employed o pe o m he e ogenei y analysis.
Addi ionally, his s udy examines he wo po en ial mechanism channels o egional digi al inance
de elopmen : en e p ise inancing cons ain s (KZ) and en e p ise cash low ci cula ions (Cash). These
bo h a e inco po a ed as he media ing a iables in o ou baseline empi ical model. The empi ical mod-
els o es he media ing e ec s o inancing cons ain s (KZ) will be cons uc ed as:
KZi ¼b0þb1DgF i þbnCon ols i þ iþk þcjþeijn (2)
InIn i ¼b0þb1DgF i þb2KZ i þbnCon ols i þ iþk þcjþeijn (3)
whe e SAi ep esen s he inancing cons ain s expe ienced by an en e p ise iin yea . These models
will es how egional digi al inance de elopmen in luence ine icien co po a e in es men s h ough
inco po a ing he e ec s o cash low ci cula ions (Cash):
Cashi ¼b0þb1DgF i þbnCon ols i þ iþk þcjþeijn (4)
InIn i ¼b0þb1DgF i þb2Cash i þbnCon ols i þ iþk þcjþeijn (5)
whe e Cashi ep esen s cash ein es men a io o i m iin yea .
3.2. De ini ion o a iables
3.2.1. Ine icien in es men
Ins ead o measu ing ine icien in es men deg ee by ou sel es, we ha e used ine icien in es men
deg ee es ima ed by CSMAR. Following p e ious li e a u e on i m-le el in es men decisions (Biddle
e al., 2009; Chen e al., 2016; Richa dson, 2006), CSMAR measu es i m ine icien in es men by es ima -
ing he expec ed in es men wi h he ollowing model;
Newin i, ¼aþbXi, −1þXIndus y þXYea þei, (6)
whe e explained a iable is Newin i, which deno es i m i’s ac ual new in es men in yea . The
ma ix Xincludes economic de e minan s (TobinQ, Cash, Le , Lis age, Re , Size) o i m-le el in es men
decisions in yea -1. We also con ol indus y ixed e ec s (PIndus y) and yea ixed e ec s (PYea ).
COGENT ECONOMICS & FINANCE 5
ei, deno es he e o e m. The i ed alue om he eg ession es ima es he expec ed in es men ,
while he esidual ep esen s he unexplained in es men , indica ing ine icien co po a e in es men s
1
.A
posi i e (nega i e) esidual sugges s ha he ac ual in es men exceeds ( alls sho o ) he expec ed
in es men , co esponding o o e in es men (unde in es men ) (Goma iz & Balles a, 2014). The absolu e
alue o he esidual measu es he de ia ion o eal in es men om he expec ed in es men , e lec ing
he deg ee o ine icien co po a e in es men s in a gi en i m-yea . Consequen ly, ou p ima y measu e
o ine icien in es men InIn , is de ined as he absolu e alue o he esidual. We hen di e en ia e
be ween ypes o ine icien co po a e in es men s wi h wo addi ional measu es. Unde in es quan i ies
unde in es men as he absolu e alue o he esidual o samples wi h nega i e esiduals, equa ing o
ze o o he wise. O e in es , on he o he hand, measu es o e in es men as he absolu e alue o he
esidual o samples wi h posi i e esiduals, also equa ing o ze o o he wise. In he obus es s, we
apply he same measu es o unde in es men and o e in es men , bu based on unde in es men and
o e in es men subsamples, espec i ely.
3.2.2. Regional digi al inance
The Digi al Inclusi e Financial De elopmen Index as a p e alen me ic o assess digi al inance de elop-
men in China. The digi al inance esea ch depa men a Peking Uni e si y has compiled his index in
collabo a ion wi h An Financial Se ices G oup, which is a well- ecognized and c edible digi al inance
company in China (Guo e al., 2020). The ansac ion da a o his en e p ise ha e he ad an age o com-
p ehensi e index composi ion, solid pe inence, na ionwide use co e age, and low e o . The e a e
h ee sub-dimensions o his index including b ead h, dep h, and digi iza ion deg ee. This pape uses
ci y le el main digi al inclusi e inancial de elopmen index (De .) and sub-dimension o b ead h (B d h)
o pe o m eg ession analysis and con i m he obus ness o indings.
3.2.3. Con ol a iables
Following li e a u e (Ding e al., 2023; Han & Gu, 2021; Huang e al., 2023; Ji e al., 2022; Puschmann,
2017), his s udy includes i m-speci ic con ol a iables o i m p o i abili y, angibili y, i m size, s ock
yield, cash low s a us, g ow h and age. These con ol a iables ha e di ec linkage wi h he dependen
a iable o ge he in luence o he digi al inance.
3.3. Da a sou ces
Da a o co e explana o y a iables DgF and B d h a e ob ained om Peking Uni e si y Digi al Finance
Inclusion Index (Guo e al., 2020). Fi m-le el a iables’da a is sou ced om CSMAR. Da a o ci y and
p o incial le el a iables a e sou ces om China S a is ical Yea book. Da a on indus y classi ica ion is
ob ained om CSRC indus y classi ica ions. The da a used in his pape co e 1,457 Chinese A-sha e
lis ed companies on Shenzhen S ock Exchange and Shanghai S ock Exchange, and dis ibu ed ac oss
366 ci ies and 31 p o inces in China. The la es e sion o digi al inance index co e ing he pe iod is
2011-2021 is used in his pape . The ime in e al o his pape is om 2012-2021, which is selec ed on
he basis o ich da a a ailabili y o he maximum numbe o i ms.
3.4. Summa y s a is ics
The de ini ions and desc ip i e s a is ics o all a iables o his s udy including he explained a iable;
ine icien in es men s (In_in ), explana o y a iables; digi al inance index (DgF), Digi al inance_b ead h
(B d h), and con ol a iables; p o i abili y (ROA), angibili y, (Tang), i m size (F_size), s ock yield (Yield),
cash low (Cash), asse s g ow h (G ow h), and i m age (Age), a e shown in Table 1. Ine icien co po a e
in es men has mean alue o -4.177, wi h s anda d de ia ion o 10.405, which sugges s no able a iabil-
i y in he deg ee o ine icien co po a e in es men s ac oss he Chinese lis ed i ms. Con e sely, he
explana o y a iable, DgF has mean alue o 2.266 wi h s anda d de ia ion o 0.654, sugges ing he
modes a iabili y in digi al inance de elopmen ac oss he p e ec u es and ci ies in which i ms a e eg-
is e ed. The same pa e n is obse ed o he suppo ing explana o y a iable B d h. Addi ionally,
desc ip i e s a is ics o all o he con ol a iables all wi hin accep able anges.
6 A. NISAR ET AL.
4. Resul s and discussion
4.1. Benchma k eg ession
Benchma k eg ession esul s o digi al inance and ine icien co po a e in es men s a e epo ed
in Table 2.TheDgF coe icien is −3.2465, which is s a is ically signi ican a 1%, sugges ing ha
digi al inance educes ine icien in es men s o Chinese lis ed i ms. This in luence is u he
e i ied by B d h wi h eg ession coe icien o −2.3677. This shows ha digi al inance allows
Chinese lis ed i ms o educe hei ine icien in es men s. Hence, H
1
is accep ed. These esul s
u he show ha p o i abili y (ROA), Fi m Size (F_size), S ock Yield (Yield), and G ow h (G ow h)as
con ol a iables also nega i ely in luence ine icien co po a e in es men s. This pape u he
classi ies ine icien co po a e in es men s in o o e -in es men s and unde -in es men s, and e-
es ima es he empi ical model. Columns (1) and (2) o Table 3 epo he esul s o he o e -
in es men s, and columns (3) and (4) in same able epo he esul s o he unde -in es men s.
In bo h cases, digi al inance signi ican ly educes ine icien co po a e in es men s as DgF and
B d h coe icien s a e nega i e and s a is ically signi ican . Howe e , digi al inance’sin luenceis
mo e p onounced in educing he deg ee o ine icien co po a e in es men s o hose making
unde -in es men s. O e all, i can be claimed ha digi al inance helps he i ms o educe he
Table 1. Desc ip i e s a is ics.
Va iable Symbol De ini ion Mean S d. de Min Max
Ine icien in es men
deg ee
In_In The deg ee o ine icien co po a e in es men s. −4.177 10.405 −860.99 −0.001
Digi al inclusi e inance
index
DgF The digi al inclusi e inance index o he ci y in which he
i m is egis e ed.
2.266 0.654 0.620 3.597
Digi al inance_b ead h B d h The b ead h index o i m’s egis e ed ci y. 2.258 0.659 0.401 3.718
P o i abili y ROA Ne p o i /To al asse s 0.028 0.137 −4.782 7.446
Tangibili y Tang Tangible asse s / To al asse s 0.231 0.178 0.000 0.954
Fi m size F_size Na u al loga i hm o o al asse s 22.619 1.404 14.940 28.640
S ock yield Yield Fi m’s annual s ock yield. 0.153 0.512 −0.806 7.355
Cash low Cash Ne cash low om ope a ing ac i i ies / To al asse s a
beginning o he pe iod
0.052 0.099 −4.050 1.209
Asse g ow h G ow h The annual change in o al asse s. 0.308 6.961 −0.899 529.944
Fi m age Age The di e ence be ween i m’s lis ing yea and iscal yea . 14.442 6.496 2 31
Table 2. The benchma k eg ession esul s.
Va iables
(1) (2)
In_In In_In
DgF −3.2465
(−3.64)
B d h −2.3677
(−2.48)
ROA −7.9885 −8.0250
(−12.59) (−12.64)
Tang 6.8666 6.8150
(5.9) (5.85)
F_size −1.3569 −1.4178
(−6.54) (−6.87)
Yield −0.9742 −0.8183
(−5.94) (−4.85)
Cash 29.4373 29.5195
(30.14) (30.23)
G ow h −0.0846 −0.0851
(−6.94) (−6.98)
Age 0.9818 0.7897
(5.17) (3.95)
Cons an 16.9851 19.1130
(3.7) (4.22)
Fi m, Indus y and Yea FE Yes Yes
R-Squa ed 0.154 0.181
Obs. 14,570 14,570
No es: Robus -s a is ic a e p esen ed in pa en heses; ,, and , deno e signi ican le els
o 1%, 5% and 10%, espec i ely.
COGENT ECONOMICS & FINANCE 7
hese i ms could mo i a e hem o u ilize he bene i s o digi al inance, he eby helping o build an
inclusi e ma ke .
Despi e he signi ican indings, his s udy has ce ain limi a ions ha wa an a en ion and highligh
a eas o u u e esea ch. Fi s , he sample o his s udy is limi ed o Chinese lis ed i ms, which may no
e lec he global applicabili y o he esul s. Fu u e esea che s could ex end his analysis by ocusing
on o he coun ies and egions o explo e he b oade implica ions o digi al inance de elopmen on
ine icien co po a e in es men s. Second, his s udy has used a egional le el digi al inance index as a
p oxy measu e o digi al inance de elopmen and examined i s connec ion wi h co po a e le el scen-
a ios. In he u u e, i da a on digi al inance a he i m le el become a ailable, esea ch could connec
i m-le el digi al inance wi h i m-le el co po a e ine iciency issues. Thi d, his s udy is p ima ily ocused
on he mechanisms o easing inancing cons ain s and inc easing cash low ci cula ions, al hough he e
could be o he mechanisms ha in luence he nexus o digi al inance and ine icien co po a e in es -
men s, which could be conside ed by u u e esea che s. Las ly, gi en he apid e olu ion o digi al
inance, con inuous upda es and longi udinal s udies a e essen ial o unde s and i s long- e m impac s
and dynamic in e ac ions wi h co po a e in es men s.
No es
1. Ine icien co po a e in es men s include bo h unde -in es men s and o e -in es men s, meaning ha when
i ms expe ience in o ma ion asymme ies in capi al ma ke s, and hus hey a e no well in o med o make
imely in es men decisions. Due o hese cons ain s, i ms ei he a e eluc an o make in es men s o hey
make highe in es men s han he ac ual p o i po en ial o in es men p ojec s. In bo h cases, hey emain
ine icien in ga ne ing he ac ual bene i s o in es men s, he eby esul ing in co po a e in es men
ine iciencies.
2. KZ-index is measu ed by ollowing he Kaplan and Zingales (1997).
3. Following Indus y Classi ica ion (2012 Edi ion), C29, C39, I and M a e de ined as inno a i e indus ies, while
o he indus ies a e conside ed as non-inno a i e indus ies.
4. Speci ically, SEC’s Indus y Classi ica ion (2012 Edi ion) conside s indus ies wi h indus y codes B, C25, C31, C32,
C36, C37, D, E48, G53, G54, G55, G56, I63, I64, K, and R as egula ed indus ies, while o he indus ies as
compe i i e indus ies.
CRediT au ho ship con ibu ion s a emen
Asad Nisa : Concep ualiza ion, Me hodology, Da a Analysis, W i ing; Haolin Li: Valida ion, Re iew, P oo -Reading;
Syed Sadaqa Ali Shah: Da a Cu a ion, In es iga ion, Re iew and Edi ing; Rabia Ra ique: Resou ces, Da a Cu a ion,
Supe ision.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Abou he au ho s
Asad Nisa is a doc o al s uden a he Cen al Uni e si y o Finance and Economics, Beijing, P.R. China. He is
ocused on he in eg a ion o echnology in business, economics, and en i onmen al domains. His esea ch in e es s
include egional digi al inance, digi al ans o ma ion in business, a i icial in elligence, esou ce p oduc i i y, enew-
able ene gy, clima e change, iscal policy, and public deb managemen .
Haolin Li is an unde g adua e s uden majo ing in Finance a Miami Uni e si y. He is in e es ed in digi al inance,
in ech, and o he ields, and his esea ch di ec ions include egional digi al inance, big da a analy ics, and g een
inance.
Syed Sadaqa Ali Shah ecen ly g adua ed om he Cen al Uni e si y o Finance and Economics, Beijing, P.R. China.
He is cu en ly se ing as an Assis an P o esso a Beijing In e na ional S udies Uni e si y, Beijing, P.R. China. His
esea ch di ec ions include iscal policy managemen , public deb managemen , clima e change, ene gy ansi ion,
esou ce p oduc i i y and he in eg a ion o echnology in inance and economics.
14 A. NISAR ET AL.
Rabia Ra ique is a doc o al s uden a he Cen al Uni e si y o Finance and Economics, Beijing, P.R. China. She pos-
sesses ad anced knowledge in econome ics, adep a add essing he complexi ies o econome ic echniques. He
esea ch in e es s include egional digi al inance de elopmen , iscal policy managemen , public deb managemen ,
g een inno a ion, clima e change, and ene gy e iciency.
ORCID
Asad Nisa h p://o cid.o g/0009-0004-4010-6800
Rabia Ra ique h p://o cid.o g/0009-0002-9464-4845
Da a a ailabili y s a emen
Fi m-le el da a is sou ced om CSMAR and au ho s don’ ha e au ho i y o sha e due o copy igh issue. Digi al
Inclusi e Financial De elopmen Index da a is sou ced Peking Uni e si y, and au ho s don’ ha e he igh o
sha e i .
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