Beyond traditional finance: digital financial, cash management and employment outcomes in emerging economies

Purpose This study aims to examine how digital financial penetration (DFP) influences cash management practices (CMP) and employment outcomes in emerging economies. Drawing on an integrated friction-reduction framework that combines transaction cost economics and information asymmetry theory and anchoring our analysis in institutional substitution and digital leapfrogging perspectives, the authors investigate the mechanisms through which DFP shapes firm-level financial and labor market outcomes. Design/methodology/approach Using firm-level data from 33,136 firms across 30 countries, the authors used instrumental variable regression, moderated mediation, threshold analyses and structural equation modeling to examine how DFP influences employment through CMP. Findings The DFP significantly enhanced CMP and employment outcomes, with the strongest effects in less financially developed contexts. Instead of complementing traditional financial infrastructure, DFP acts as a substitute, with its impact being most pronounced in low-development environments. Threshold analysis confirmed regime-dependent effects, while mediation analysis identified CMP as a significant channel linking DFP to employment, alongside other complementary pathways. Practical implications The findings suggest prioritizing digital financial infrastructure investments in less-developed financial markets that yield the highest returns for employment creation and wage enhancement. Social implications At the firm level, DFP enables businesses to create more jobs and better wages, particularly in less developed financial markets. These firm-level improvements aggregate and may contribute to inclusive economic growth. However, their link to macro-level societal outcomes warrants further investigation. Originality/value This study contributes to the literature by integrating friction-reduction and institutional substitution frameworks to explain how DFP shapes firm outcomes, revealing that digital finance operates as a substitute for rather than a complement to traditional financial infrastructure. Empirically, it demonstrates both job creation and wage effects while uncovering threshold dynamics across development contexts.