How does enterprise digital transformation affect the cost of debt financing? Based on the perspective of customer concentration risk

Abstract

This paper investigates how enterprise digital transformation affects the cost of debt financing from the perspective of customer concentration risk. Our results indicate that digital transformation significantly reduces the cost of debt financing. Mechanism tests reveal that digital transformation enables companies to broaden their operational breadth and depth, which mitigates customer concentration risk, thereby reducing default risk, and ultimately lowering the cost of debt financing. Further analyses suggest that the negative effect of digital transformation on firm's cost of debt financing is more pronounced for firms with lower market power, higher payment collection risk, elevated customer switching costs, greater supplier concentration, or a higher proportion of overseas business. Additionally, the effect is also influenced by the competitive dynamics of the industry in which the company operates. Finally, our findings indicate that digital transformation enhances firms' ability to secure bank credit. These findings contribute to the growing body of research on the economic implications of digital transformation and offer practical insights for firms seeking to leverage digital technologies to strengthen supply chain resilience, mitigate operational risks, and address financing challenges.