The Impact of Digital Transformation on Financing Constraints of Overseas Subsidiaries: Evidence from Chinese Multinational Enterprises

Haiyan Yu

doi:10.6981/FEM.202610_7(10).0023

Authors

Haiyan Yu Shanghai Second Polytechnic University, Shanghai, China

DOI:

https://doi.org/10.6981/FEM.202610_7(10).0023

Keywords:

Digital Transformation; Financing Constraints; Overseas Subsidiaries; Multinational Enterprises.

Abstract

Digital transformation occupies a central place in the strategies of multinational enterprises (MNEs). How it shapes the financing constraints of their overseas subsidiaries, however, has attracted little empirical attention. This paper draws on panel data covering Chinese listed multinational enterprises and their overseas subsidiaries over the period 2010 to 2024, and asks whether digital transformation at the parent company eases the financing constraints of subsidiaries abroad. The parent company's level of digital transformation is captured by the frequency of digital-related keywords in its annual reports; financing constraints are proxied by the SA index. Estimation relies on high-dimensional fixed-effects models.Parent company digital transformation is found to ease the financing constraints faced by overseas subsidiaries. This conclusion survives alternative specifications, the exclusion of the COVID-19 period, and instrumental variable estimation designed to address endogeneity. In terms of heterogeneity, the effect is stronger for subsidiaries located in developing countries, for those in non-digital industries, and for those whose parent firms are not state-owned.By shifting attention to subsidiary-level financial outcomes inside multinational enterprises, the paper adds to existing work on digital transformation. The evidence assembled here also indicates that digitalization changes how resources are allocated across borders and how subsidiaries are financed, which carries practical weight for Chinese firms expanding internationally.

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