The Incentive Effect of Digital Finance on Innovation of Small- and Medium-Sized Enterprises Considering Heterogeneity: An Empirical Study Based on Chinese-Listed Firms

The development of digital finance provides new opportunities for solving the dilemma of innovation financing for small- and medium-sized enterprises (SMEs). This study empirically examined the heterogeneous characteristics and mediating mechanisms of digital finance and its incentive effects on SME innovation using panel data of Chinese and GEM board-listed companies from 2010 to 2021. It was found that digital finance can significantly incentivize SME innovation; however, there are differences in efficacy among digital finance sub-dimensions, with breadth of coverage having the strongest effect, followed by depth of use, and digitization degree having a non-significant effect. Meanwhile, there is heterogeneity in the incentive effect of digital finance on SME innovation, which is manifested as private SMEs and SMEs in regions with stronger financial regulations and a higher degree of marketization being more likely to be incentivized by digital finance to innovate. In addition, digital finance can indirectly incentivize SMEs to innovate through three paths: alleviating financing constraints, improving risk tolerance, and solving information asymmetry.