More technology, more loans? How advanced digital technologies influence firms’ financing conditions

The paper investigates the effects of the adoption of advanced digital technologies (i.e., Industry 4.0) on firms’ credit conditions through a signaling effect. The empirical analysis exploits microdata from the Bank of Italy’s “Survey on Manufacturing and Service Firms” available for the period 2015–2019, integrated with balance sheet information provided by Cerved. We use a binary endogenous treatment effect model and IV estimation strategy to determine the average effect of digital technology adoption on firms’ financing variables. The results can be summarized as follows: (i) the adoption of digital technologies (DT) lowers the likelihood of being credit rationed; (ii) the adoption of DT is associated with a higher level of leverage but with a lower cost of debt; (iii) the increased firm’s debt is associated with a composition effect resulting in an expansion of bank debt and a reduction in financial debt. These results, which are robust to a number of checks, suggest that digital technology adoption improves firms’ financial conditions, with lower constraints and lower costs, and also influences the relationship between the firm and the financial institutions. • The paper studies how digital technology adoption affects firms’ credit conditions. • Adopting digital technologies lowers credit rationing likelihood and firms’ debt costs. • A composition effect between funding sources associated with adoption is detected. • Digital technologies may reshape market composition by consolidating adopting firms.