Does digital finance foster corporate innovation? Evidence from China

This study examines how digital finance foster corporate innovation. Unlike prior research focused on statistical associations, we investigate the underlying economic mechanisms driving that relationship. Using panel data of Chinese listed firms from 2013–2023, we show that digital finance stimulates corporate innovation through two primary channels. On the supply side, digital finance supports innovation by optimizing resource allocation, improving risk management, and providing high-quality information. On the demand side, digital finance stimulates the innovation needs of enterprises by improving their dynamic capabilities. Moreover, a favorable governance environment further amplifies these effects. Heterogeneity analysis reveals stronger impacts for large firms, firms with IT-background CEOs, capital-intensive and high-pollution industries. Regionally, digital finance plays a more inclusive role in low marketization and underdeveloped areas. Overall, this study systematically uncovers the mechanisms through which digital finance influences corporate innovation and provides novel insights for designing fintech-driven development policies in emerging markets.