Financial constraints and corporate digital transformation: Evidence from text-based measures and distributional analysis

Type of the article: Research ArticleAbstractThis study examines the relationship between financial constraints and corporate digital transformation among Vietnamese listed manufacturing firms and whether this association varies across the conditional distribution of digital transformation. Using a balanced panel of 272 firms from 2017 to 2024, the study constructs a text-based measure of corporate digital transformation from annual reports using TF-IDF weighting and principal component analysis. The empirical analysis combines high-dimensional fixed effects (HDFE), two-step System GMM, and method of moments quantile regression (MMQREG). The results show a consistent negative and statistically significant association between financial constraints and the text-based digital transformation measure in both the HDFE and System GMM specifications. The positive coefficient on the lagged dependent variable indicates persistence in the text-based measure of digital transformation over time. The MMQREG point estimates become progressively more negative toward the upper quantiles of the conditional distribution. However, formal coefficient-equality tests do not provide sufficient evidence that the estimated coefficients differ across quantiles. Thus, the point-estimate pattern is directionally consistent with the proposed distributional hypothesis but does not establish statistically significant differences across quantiles. These findings indicate that financial constraints remain closely associated with firms’ disclosed digital-transformation intensity. Because the digital transformation index is derived from corporate disclosures, the estimates should not be interpreted as direct evidence of realized digital investment or verified implementation. Methodologically, this study integrates a machine-learning text-based measure of digital transformation with complementary fixed-effects, dynamic panel, and distributional estimation approaches.AcknowledgementThis paper is an outcome of the Ministerial-Level Project B2025-KHA-08, titled: ‘The impact of financial constraints on digital transformation and the performance of manufacturing firms in the context of digital transformation in Vietnam.