The relationship between digital transformation, financial constraints and financial performance: An empirical study of listed companies in Vietnam

Abstract

This research examines the nexus between digital transformation, financial constraints, and financial performance of listed firms on the Ho Chi Minh Stock Exchange (HOSE) in Vietnam. Digital transformation has emerged as a primary driver to enhance operational efficiency, streamline production processes, and enhance the competitive advantage of firms. Implementation of such transformations is typically restricted by major barriers, especially financial constraints. Studies examine data of more than 270 listed companies on HOSE during the year 2016-2023 with the purpose of determining the role of digital transformation and financial constraint in financial performance. Results reveal that not only does digital transformation increase market capitalization of a company, but also decreases its cost of operation, leading to high profitability. In addition, debt financing and equity financing play mediating roles for linking digital transformation and financial performance. Digital transformation, in particular, improves financial transparency and operational efficiency that, in turn, reduces the cost of debt financing by making the availability of funding at better interest rates possible. The paper explains the contribution of digital transformation and financial constraints on financial performance and offers policy implications for facilitating sustainable business development in the context of the digital economy.