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

 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

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

)

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)

24.567**

(2.04)

Constant 252.365***

(

37.97

)

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

1.573** 1.397* 1.366*

(

2.19

)

(

1.94

)

(

1.69

)

oe×Dif -0.397***

(

-3.59

)

ize×Dif 0.251

(

1.41

)

lnGDP×Dif 0.179**

(

2.41

)

oe 179.779***

(

3.65

)

ize 48.242**

(

2.04

)

lnGD

-70.523

(

-1.06

)

Constant

-1.9e

+03***

-2.1

e+03***

-1.3 e +03

(-3.32) (-3.70) (-1.57)

12421 12421 12421

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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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

0.030***

(3.57)

it 0.007**

(

2.40

)

Constant -11.656** -6.130

(

-2.05

)

(

-1.14

)

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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