Study on How Digital Finance Affect
Growth of Small and Micro Enterprises in Manufacturing Industry
Based on the Perspective of Enterprise Financialization
Xinlan Liu
School of Business Administration Northeastern University, Shenyang, China
Keywords: Digital Finance, Enterprise Financialization, Enterprise Growth.
Abstract: Under the background of vigorous development of digital finance, the combination of digital technology and
traditional finance will help alleviate and expensive the financing difficulties of small and micro enterprises,
and provide new development opportunities for them. Therefore, based on the research perspective of
enterprise financialization, this paper studies the impact of digital finance on enterprise growth, using the data
of A-share listed manufacturing small and micro enterprises in Shanghai and Shenzhen stock markets from
2011 to 2020 for empirical research. It is found that, first, the development of digital Inclusive Financing can
significantly enhance the short-term growth of enterprises. Secondly, by analyzing the mechanism, the
development of digital finance can increase the proportion of financial investment of enterprises, provide high
liquidity funds for enterprises, meet the investment and financing needs of small and micro enterprises, and
boost the growth of enterprises. Third, the influence of digital finance on enterprise growth is heterogeneous,
which is mainly due to the differences in factors such as the nature of enterprise ownership and regional
development. In addition, for enterprises of different sizes, there is no significant difference in the role of
digital finance development, which indicates that the development of digital finance has strong inclusiveness.
Finally, this paper gives some policy suggestions.
1 INTRODUCTION
According to the definition in the Digital Financial
Services Report released by the World Bank in 2020,
digital finance is a financial model in which traditional
financial departments and financial technology
enterprises use digital technology to provide financial
services. Digitalization reduces the cost of financial
services and improves the coverage and alleviates
regional restrictions, which can greatly "bail out"
small and micro enterprises in financing. However,
many studies have shown that financing constraints
are an important factor restricting the growth and
development of enterprises. At present, the financing
constraints of manufacturing enterprises are in an
excessive state, which will seriously hinder the high-
quality development of enterprises (Shuguang Xiao et
al., 2020). Thus, this paper will further explore
whether digital finance has a positive impact on the
growth of small and micro manufacturing enterprises
under the background of continuous and accelerated
development of digital finance. If so, through what
mechanism does it affect the growth of enterprises?
Therefore, this paper analyzes the above problems
based on the data of A-share listed manufacturing
small and micro enterprises and the data of The Peking
University Digital Financial Inclusion Index of China,
innovatively put forward the action path of
financialization, and analyzed the heterogeneity, in
order to provide useful reference for relevant
government departments or enterprises to grasp the
growth and development direction of enterprises and
realize the rapid and healthy development of small and
micro enterprises.
Compared with the existing literature, the possible
marginal contribution of this study lies in three
aspects: First, predecessors mostly focused on micro-
level management (Zhui Liu et al., 2017 and Lingsha
Zhang et al., 2022), finance (Xiaolong Ma, 2014 and
Weiwei Song et al., 2021), financing (Ziqing Chen et
al., 2015 and Zheng Chi, 2021) and macro-level policy
environment (Chuanxian Li et al.). This paper
innovatively incorporates digital finance into the
analysis framework of enterprise growth, and
Liu, X.
Study on How Digital Finance Affect Growth of Small and Micro Enterprises in Manufacturing Industry Based on the Perspective of Enterprise Financialization.
DOI: 10.5220/0012029800003620
In Proceedings of the 4th International Conference on Economic Management and Model Engineering (ICEMME 2022), pages 295-300
ISBN: 978-989-758-636-1
Copyright
c
2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)
295
empirically tests the impact of digital finance on the
growth of small and micro manufacturing enterprises
from a macro level, enriching the related research on
enterprise growth; Secondly, this paper discusses the
influence mechanism of digital finance on enterprise
growth from the perspective of enterprise
financialization, that is, digital finance can maintain
enterprise liquidity and enhance enterprise growth in
a short time by promoting enterprise financialization.
By clarifying this mechanism, it provides micro
empirical evidence for the rationality of enterprise
asset allocation; Thirdly, considering the influence of
internal and external differences of different micro-
subjects on the research results, this paper further
analyzes the heterogeneity from two angles of
property rights attributes and regional development,
and provides certain policy suggestions for the
application of digital finance.
2 MATERIALS AND METHODS
2.1 Benchmark Regression Model
In order to test the relationship between the
development of digital finance and the performance of
manufacturing enterprises, this paper refers to the
research of Weicheng Xu et al. (2022) and constructs
the following regression model:
++++++=
titititi
YearIndustryCompanyControlsDifPerf
,,2,1,
εββα
(1)
According to the existing theories and literature,
this paper controls the influencing factors of enterprise
performance, Controls
i,t
including the following
variables: enterprise age, asset-liability ratio, return on
assets, ownership concentration, Tobin's Q value,
institutional investor's shareholding ratio, asset scale,
total number of employees, employee quality, equity
nature. At the same time, this paper also controls the
fixed effects of individuals, industries and years.
2.2 Instrumental Variable: Internet
Development Level
Therefore, this paper attempts to alleviate the
endogenous problems by means of instrumental
variable method. Referring to the research of Huali
Xie et al. (2018), the article selects the provincial
Internet development level as the tool variable of the
provincial digital finance development level index.
Refering to the method of Yunhui Zhang et al. (2022)
and the practice of Qunhui Huang et al. (2019) to
construct the Internet Development Level Index, this
paper uses four indexes after standardized treatment,
including the proportion of employees in information
transmission, software and information technology
services in the whole industry, the number of Internet
broadband access ports, and the total amount of
telecommunication services per capita and the
penetration rate of mobile phones, to comprehensively
calculate the Internet Development Index (net) by
entropy method, for measuring the Internet
development level of various provinces.
3 RESULTS & DISCUSSION
3.1 Basic Results
Table 1 shows the estimated results of the impact of
digital finance development on enterprise growth.
Column (1) is the estimated result of the impact of the
digital financial total index on the growth of
enterprises. It is found that the coefficient of the digital
Inclusive Financing total index (Dif) is significantly
positive at the level of 5% after controlling the
characteristics of enterprises, indicating that when the
development level of digital Inclusive Financing in the
province where enterprises are located improves, it
will increase the growth rate of total profits of
enterprises and promote the growth of enterprises.
Regression of three first-class indicators under the
digital Inclusive Financing total index. Referring to
Sixian Feng's (2021) practice, considering that there
may be errors if only the total index is used to measure
the development of digital finance, in order to make
the research results more stable, it should be more
appropriate to choose the digital degree index (digit)
which is more related to financial friction among the
three first-level indicators to re-depict the
development of digital finance. Columns (2) to (4) are
estimated results. Only the digital Inclusive Financing
Digitalization Index (digit) is significantly positive at
the level of 1%, which is consistent with the expected
results.
Table 1: Digital Finance Development and Enterprise Growth: Basic Regression
(1) (2) (3) (4)
Perf Perf Perf Perf
Dif 1.552**
(
2.15
)
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296
cove
r
1.074
(
0.90
)
depth 0.404
(
1.10
)
digit 0.667***
(
2.77
)
Constant -2.1 e+03*** -1.9e +03*** -1.8 e+03*** -1.9e +03***
(
-3.67
)
(
-3.31
)
(
-3.28
)
(
-3.54
)
N
12421 12421 12421 12421
adj R2 0.141 0.141 0.141 0.142
Controls YES YES YES YES
Firm FE YES YES YES YES
Ind FE YES YES YES YES
Year FE YES YES YES YES
3.2 Instrumental Variable Method
The instrumental variable method is used to reduce the
endogenous influence. As mentioned above, this study
uses provincial Internet penetration rate as tool
variable. Table 2 reports the estimation results using
the instrumental variable method. In the first stage of
regression, the coefficient of Internet development
level (net), an instrumental variable, is significantly
positive at the confidence level of 1%, which is highly
positively correlated with the development level of
digital finance (Dif). The Kleibergen-Paap rk LM
statistic was 28.925 with a p value of 0.00, which
passed the unrecognizable test at the level of 1%.
In the test of instrumental variables, Cragg-Donald
Wald F statistic is 42.36, Kleibergen-Paap rk Wald F
statistic is 24.164, both of which are greater than the
critical value of 16.38 at the 10% level, which
significantly rejects the hypothesis of weak
instrumental variables. Because the number of
endogenous variables is equal to that of tool variables,
tool variables are just identified and tool variable
construction is valid. In the two-stage estimation, the
regression estimation coefficient of digital Inclusive
Financing development index to enterprise growth is
still significantly greater than 0 at the level of 5%,
indicating that the conclusion of benchmark
regression after using instrumental variables is still
very stable, indicating that the development of digital
Inclusive Financing can promote enterprise growth.
Table 2: Digital Finance Development and Enterprise
Growth: Linear Model 2SLS.
(1) (2)
First Second
Dif Perf
net 0.006***
(4.92)
Di
f
24.567**
(2.04)
Constant 252.365***
(
37.97
)
N
12421 12421
adj R2 0.996 -0.208
Controls YES YES
Firm FE YES YES
Ind FE YES YES
Year FE YES YES
3.3 Heterogeneity Analysis
It has been verified that the development of digital
finance can significantly enhance the growth of
enterprises. In view of the importance of the nature of
internal property rights and the influence of external
economic environment on the growth of enterprises,
this part will test the heterogeneity around the nature
of property rights, the scale of enterprises and the GDP
of the provinces where they are located.
3.3.1 Property Right Nature
In order to explore the influence of enterprise nature
on digital finance to enhance enterprise growth, this
paper divides sample enterprises into state-owned
enterprises and non-state-owned enterprises according
to the nature of property rights. If the enterprise is
ultimately controlled by state-owned enterprises, the
value soe is 1, otherwise it is 0, and the analysis is
carried out by adding interactive items.
The regression results in column (1) of Table 3
show that the coefficient of interaction term is
significantly negative at the level of 1%, while the
main effect coefficient is significantly positive,
indicating that compared with state-owned enterprises,
the development of digital finance promotes the
growth of non-state-owned enterprises more strongly,
and the hypothesis H2 is verified.
Study on How Digital Finance Affect Growth of Small and Micro Enterprises in Manufacturing Industry Based on the Perspective of
Enterprise Financialization
297
3.3.2 Enterprise Scale
According to the "Small and Medium-sized Enterprise
Classification Standard", the industrial sector
identifies enterprises with 20-300 employees or 3-20
million operating income as small enterprises, with
value size of 1; If the number of employees is less than
300 or the operating income is less than 3 million, it is
a micro-enterprise with value size of 0. Analyze by
adding interactive items.
The regression results in column (2) of Table 3
show that the coefficient of interactive items is not
significant, indicating that there is no significant
difference in the promotion of digital finance
development to enterprise growth among enterprises
of different sizes. The possible reasons are as follows:
on the one hand, among the listed companies in
manufacturing industry, the smaller enterprises face
greater survival risks, but usually have higher return
on scale, so the surviving enterprises have higher
growth rates; However, the growth of large enterprises
is relatively stable (Hongya Li, 2022). On the whole,
the growth of small and micro enterprises may be
distributed evenly under the influence of scale. On the
other hand, the development of digital finance may
tend to balance the growth differences among
enterprises of different sizes, and its inclusiveness
enables all small and micro enterprises to obtain more
fair financing opportunities, so there is no significant
difference between small and micro enterprises in the
heterogeneous impact of digital finance development
on the growth of enterprises.
3.3.3 Regional GDP
In order to confirm whether the promotion of growth
is different among regions with different economic
conditions and development levels, this paper takes
logarithm of GDP of each province and adds
interactive items for analysis. The regression results in
column (3) of Table 3 show that the coefficient of
interaction term is significantly positive at the level of
5%, which is the same as the symbol of main effect
coefficient, indicating that higher regional GDP can
enhance the promotion of digital finance development
to enterprise growth. This conclusion is similar to that
of Ning Gu (2022). The reason may be that the
promotion of digital finance to the growth is not
completely inclusive, but partially inclusive. Digital
finance is based on the development of traditional
finance, and its development level is still partially
limited by the local financial development level, while
the development of finance is also limited by the local
developed level. Therefore, the alleviating effect of
digital finance on the growth constraints of small and
micro enterprises in underdeveloped areas will be
weaker than those in developed areas. Also, the
promoting effect of digital finance on the growth of
small and micro enterprises will be inclined to
developed areas.
Table 3: Digital Finance Development and Enterprise
Growth: Heterogeneity Analysis.
(1) (2) (3)
Perf Perf Perf
Di
f
1.573** 1.397* 1.366*
(
2.19
)
(
1.94
)
(
1.69
)
s
oe×Dif -0.397***
(
-3.59
)
s
ize×Dif 0.251
(
1.41
)
lnGDP×Dif 0.179**
(
2.41
)
s
oe 179.779***
(
3.65
)
s
ize 48.242**
(
2.04
)
lnGD
P
-70.523
(
-1.06
)
Constant
-1.9e
+03***
-2.1
e+03***
-1.3 e +03
(-3.32) (-3.70) (-1.57)
N
12421 12421 12421
ad
j
R2 YES YES YES
Controls YES YES YES
Firm FE YES YES YES
Ind FE YES YES YES
4 MECHANISM ANALYSIS
According to the test above, this paper finds that
digital finance can promote the growth of enterprises,
but the mechanism is not clear yet. This part will try
to make further analysis from the perspective of
enterprise financialization, and try to provide further
empirical evidence of the mechanism of digital
finance affecting enterprise growth.
Digital finance provides more convenient financial
services for a wider population, and the cost of
allocating financial assets for small and micro
enterprises is significantly reduced. Therefore, small
and micro enterprises are more inclined to allocate
financial assets for two reasons: "preventive
motivation" and "profit-seeking motivation".
Similarly, the deepening of financialization will
provide support for the growth and development of
small and micro enterprises from the same two aspects.
The capital cycle of manufacturing industry is
generally high. From the perspective of prevention,
the liquidity management function of financial assets
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298
can make up for the problem of insufficient liquidity
of manufacturing enterprises, alleviate the capital
pressure of small and micro enterprises and improve
the internal environment of enterprise development.
From the perspective of profit, the return on
investment of financial assets is generally higher than
that of physical investment. Moderate financialization
can meet their industrial investment needs by
broadening financing channels (Mingyu Li et al.,
2019), and enhance the resource allocation ability of
small and micro enterprises, thus enhancing the
growth of enterprises.
Referring to the research of Yong Du et al. (2017),
this paper constructs the variable of "financialization
degree (fa)". The specific definition is:
financialization degree (fa) = (transactional financial
assets + derivative financial assets + net loans and
advances + net available-for-sale financial assets + net
held-to-maturity investment + net investment real
estate)/total assets × 100%. Table 4 shows the
regression results of the impact of digital finance
development on the financialization level of
enterprises. It can be seen that the development of
digital finance has significantly deepened the
financialization of enterprises.
Table 4: Digital Finance Development and Enterprise
Financialization Degree.
(1) (2)
fa fa
Di
f
0.030***
(3.57)
di
g
it 0.007**
(
2.40
)
Constant -11.656** -6.130
(
-2.05
)
(
-1.14
)
N
12421 12421
Controls YES YES
Firm FE YES YES
Ind FE YES YES
Year FE YES YES
5 CONCLUSIONS
There are still great restrictions on the development
environment of small and micro enterprises in China.
Ensuring the healthy growth and development of
small and micro enterprises plays a key role in
economic development. Exploring the impact of
digital finance development on small and micro
manufacturing enterprises has important reference
significance for enterprise strategy and policy
direction.
Based on the micro data of small and micro
enterprises in manufacturing industry and The Peking
University Digital Financial Inclusion Index of China,
this article empirically analyzes the impact of digital
Inclusive Financing development on the short-term
growth of enterprises. The main conclusions are as
follows: first, the development of digital finance can
significantly promote the short-term growth of small
and micro manufacturing enterprises. Second, With
the improvement of the development level of digital
finance, the financialization degree of enterprises in
this region has deepened, and the financing
environment and liquidity of small and micro
manufacturing enterprises have been improved, thus
enhancing the short-term growth of enterprises. Third,
The impact of the development of digital Inclusive
Financing on the short-term growth of enterprises
shows strong heterogeneity, and the growth of non-
state-owned enterprises is more significant; There is
no significant difference in the impact on small and
micro enterprises of different sizes; In areas with
higher economic development level, the promotion of
enterprise growth is stronger.
At present, China's digital economy is in a period
of rapid development. It is of great significance to
discuss the impact of the development of digital
Inclusive Financing on the main force of China's real
economy development, that is, small and micro
manufacturing enterprises. According to the
conclusion of this paper, the following policy
suggestions are given: first, the government should
further deepen the reform of digital finance to
continuiously help the development of small and
micro enterprises. Second, Small and micro
enterprises can give play to the advantages of financial
assets in the process of growth. They can adjust the
strategic planning accordingly. Third, the
development policy of digital finance can be
appropriately tilted. The policy should adaptation to
local condition according to regional characteristics in
order to guide enterprises to rationally apply digital
finance and develop rapidly and healthily.
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