Unlocking the path to digital financial accounting: A study on Chinese SMEs and startups

The undeniable significance of small and medium-sized enterprises (SMEs) and startups in fostering economic development and prosperity serves as the backdrop for this study. The primary goal of this research is to determine how various factors influence the digitalization of financial accounting within SMEs and startups. An analysis is carried out using data from a cohort of 200 Chinese SMEs, all listed and sourced from the China Stock Market & Accounting Research database's financing reports from 2010 to 2020. The findings suggest that environmental, social, and governance investment and loans obtained by these SMEs positively promote digitalization. Meanwhile, financial fraud acts as a barrier to the expansion of digitalization within their financial structures. Notably, total income and transaction costs exhibit a mixed pattern of effects, acting as long-term enablers of digitalization. Moreover, the Chinese government's establishment of an electronic financial accounting standard framework and provision of incentive packages can expedite the digitalization of financial accounting in Chinese SMEs.