Digital transformation and the cost of bank loans in China

Purpose This study aimed to analyze the impact of enterprise digital transformation on bank loan contracting from 2007 to 2021. Design/methodology/approach This study used an empirical approach to examine the impact of digital transformation on bank loan interest rates and the possible mechanisms. The digital transformation data of firms were obtained by Python, and the bank loan contracting information of Chinese listed firms was hand-collected from the notes of the annual report. Findings The results show that digital transformation can significantly reduce the bank loan interest rate and show heterogeneity in the nature of property rights, industry type and firm size. The above results remain significant after conducting a series of robustness tests. Channel tests suggest that digital transformation can promote total factor productivity, improve firms’ information environment and reduce the risk of financial distress, thus helping them reduce their loan interest rate. In addition, banks’ digital transformation can also affect the link between enterprise digital transformation and bank loan interest rates. Originality/value First, this paper deeply investigates the relationship between enterprise digital transformation and bank loan contracting, and the mechanisms behind it which expands the research on economic consequences of digitalization. Developing digitalization society has been a top priority in China as it is an urgent task to survive in the competitive global economic environment as a developing country. Second, in developed countries, the evidence relating to bank loan contracting is plentiful. However, the Chinese studies are still very limited as it has no database like Dealscan in US.