How does artificial intelligence affect the financing efficiency of small and medium-sized enterprises (SMEs)?

This study examines how artificial intelligence (AI) affects the financing efficiency of SMEs in China from 2007 to 2023. Using a novel AI adoption index derived from annual report text analysis and a comprehensive financing efficiency measure, we find that AI significantly improves SME financing efficiency by reducing costs and risks and enhancing returns. The effects operate through alleviating information asymmetry, easing financing constraints, and promoting innovation. The impact is more pronounced for non-state-owned firms, technology-intensive industries, and those in eastern China. These findings offer insights for digital transformation in emerging market SMEs. • Constructs a novel firm-level AI adoption index using text mining of Chinese SMEs' annual reports. • Finds that AI significantly improves SME financing efficiency by reducing cost, risk, and improving returns. • Identifies information asymmetry reduction, financing constraint alleviation, and innovation promotion as key mechanisms. • Reveals stronger AI effects among non-state-owned firms, technology-intensive sectors, and firms in eastern China. • Provides empirical evidence on how digital technologies reshape SME financing in emerging market contexts.