The impact of artificial intelligence (AI) finance on financing constraints of non-SOE firms in emerging markets

Abstract

PurposeThis study investigates the impact of AI finance on financing constraints of non-SOE firms in an emerging market.Design/methodology/approachUsing a sample of non-SOE listed companies in China from 2011 to 2018, this research employs the cash–cash flow sensitivity model to examine the effect of AI finance on financing constraints of non-SOE firms.FindingsWe find that the development of AI finance can alleviate the financing constraints of non-SOE firms. Further, we document that such effect is more pronounced for smaller firms, more innovative firms and firms in developing areas.Practical implicationsThis study suggests that emerging market countries can ease the financing constraints of non-SOE firms by promoting AI finance development.Originality/valueThis study, to the best of our knowledge, is the first one to explore the relationship between AI finance development and financing constraints of non-SOE firms in emerging markets.

FinTech and firm’s cash holdings: evidence from China

“…Furthermore, the findings align with our arguments that FinTech improves cash management, strengthens corporate governance, eases financial constraints and mitigates agency costs. Finally, our results support prior literature (Ji et al , 2022; Lv and Xiong, 2022; Shao et al , 2022; Zhu, 2019).…”

“…FinTech also enables households with fewer assets and less income and those in rural areas to access insurance (Hu et al , 2022). Corporate-level evidence shows that FinTech positively contributes to firms’ investment efficiency (Lv and Xiong, 2022), improves manufacturing firms’ servitization (Chen and Zhang, 2021), alleviates financial constraints (Shao et al , 2022), overcomes bankruptcy risk (Ji et al , 2022) and negatively affects bank performance (Phan et al , 2020). Despite the primary usage of FinTech for payment and financing purposes, the literature lacks empirical evidence on the association of FinTech and the level of cash holdings in firms.…”

“…Therefore, unwarranted cash holdings may be discouraged with FinTech. Second, FinTech is known for easing financial constraints by broadening the financing network, eliminating the need for frequent physical visits to financers' offices and streamlining lending procedures (Shao et al, 2022). Consequently, the cost of financing is reduced, and holding higher cash reserves becomes undesirable.…”

“…A robust governance system and information transparency ensure the proper allocation of a firm’s resources, including cash. FinTech broadens financing networks, accelerates loan approvals and eases financing constraints (Shao et al , 2022). Therefore, reporting an excessive cash balance on the balance sheet will send a negative signal to the market.…”

Guest editorial: Impact of artificial intelligence on business strategy in emerging markets: a conceptual framework and future research directions

“…In "The impact of artificial intelligence (AI) finance on financing constraints of non-SOE firms in emerging markets," Shao et al (2022) discuss AI finance's influence on the financial constraints of non-SOE firms in China. The authors report that AI financing can alleviate these constraints, especially for smaller and more innovative businesses in developing areas.…”