The financial benefits of digital technology adoption: Evidence from large language model

Corporate financing decisions are fundamental to firm growth and long-term competitiveness. While digital technologies have been widely adopted to improve operational efficiency and business performance, their influence on corporate financing decisions remains underexplored. This study constructs firm-level measures of digital technology adoption by using a large language model and investigates how digital adoption affects financing behavior for Chinese A-share listed firms. We find that digital technologies significantly mitigate financing constraints by lowering the cost of capital and expanding access to external funds. These benefits arise through three key channels: enhancing corporate transparency, boosting profitability, and fostering innovation. Further analysis reveals that the improvement in financing conditions driven by digital technologies is more pronounced in smaller firms and for equity financing. Our results highlight the economic significance of digital technology in mitigating financial frictions and improving capital allocation efficiency.