The effects of digital finance and financial constraint on financial performance: Firm-level evidence from China's new energy enterprises

Sustainable development comprises two key factors: new energy and digital finance. In the case of China, given the significant investment and financing problem that confronts its new energy development plans, it remains unclear whether digital finance plays a role in the matter. In this study, panel data of 157 Chinese listed new energy companies and the digital finance index constructed by Peking University Institute of Digital Finance are analyzed via the system of generalized moment method to determine the effects of digital finance and financial constraints on a firm's financial performance. The results show that digital finance can contribute to new energy firms' financial performance, while financial constraints have a robust negative effect on the same. Further, financial constraints weaken the role of digital finance. Moreover, a heterogeneous analysis reveals the following. First, the promotion effect of digital finance is larger among small firms and non-state-owned enterprises. Second, the magnitude of the inhibition effect of financial constraints is higher among larger firms. This study elucidates the role of digital finance in promoting the development of new energy industry and bears critical policy implications.