Does digitalizing supply chains enhance corporate financial stability?

Using difference-in-differences (DID) methodology on data from Chinese A-share companies spanning 2010 to 2022, the study leverages the China's Supply Chain Innovation and Application Pilot Program as a quasi-natural experiment to examine how supply chain digital transformation (SCDT) affects corporate financial stability, particularly expected default frequency (EDF). The results show that SCDT significantly reduces EDF by enhancing operational efficiency, improving resource coordination, and mitigating financial risks. The study identifies mechanisms driving this effect—including improved transparency in information sharing, reinforced internal governance, and reduced dependency on external financing—validated by robustness checks, such as propensity score matching and instrumental variable analysis. The impact of SCDT varies across firms, with larger companies and those in regions that have less exposure to markets, experiencing greater financial benefits of SCDT due to firm-specific characteristics and local conditions.