Unlocking productivity: How digital finance catalyzes manufacturing's new-quality capabilities

This paper examines whether and how digital finance promotes manufacturing firms' new-quality productivity, a quality-oriented form of productivity growth driven by technological upgrading and optimized factor allocation. Using an unbalanced panel of Chinese A-share listed manufacturing firms from 2011 to 2023, we construct a firm-level new-quality productivity index and combine it with a comprehensive regional digital finance index. Employing panel regressions with firm and year fixed effects, we find that digital finance significantly enhances firms' new-quality productivity. Mechanism analyses identify three channels through which digital finance operates. First, digital finance alleviates firms' financing constraints, reducing investment–cash flow sensitivity and improving capital allocation. Second, digital finance accelerates firms' digital transformation and artificial intelligence adoption, exhibiting strong complementarity with digital technologies in generating productivity gains. Third, digital finance strengthens the productivity returns to innovation by facilitating the intertemporal transformation of R&D investment into effective productivity improvements. Heterogeneity analyses show that the positive effects are more pronounced for small firms, state-owned enterprises, and firms in regions with lower marketization. Overall, this study provides firm-level evidence that digital finance is a key driver of new-quality productivity growth in manufacturing, linking financial innovation to productivity upgrading and high-quality economic development.