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The impact of firm size distribution on digital lending development: A pre-registered report

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  • Xu, Shiyu
  • Huang, Yiping

Abstract

This paper argues that the firm size distribution (FSD) is a key demand-side determinant of digital lending development. Economies with more micro and small enterprises (MSEs) face greater unmet credit demand — demand that digital lenders, with their data-driven efficiency and lower marginal costs, are well positioned to serve. Using cross-country panel regressions combining data from GEM, BIS, and the Cambridge Centre for Alternative Finance, we test whether FSD directly predicts digital lending penetration (linearly or with threshold effects) and whether the relationship is moderated by supply-side factors. To address endogeneity, we introduce a shift-share instrumental variable (SSIV) strategy to the financial structure literature. A complementary sub-national analysis of China provides additional identification. The study contributes a demand-side perspective to the digital finance literature and extends optimal financial structure theory both theoretically and empirically.

Suggested Citation

  • Xu, Shiyu & Huang, Yiping, 2026. "The impact of firm size distribution on digital lending development: A pre-registered report," Pacific-Basin Finance Journal, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:pacfin:v:99:y:2026:i:c:s0927538x26001708
    DOI: 10.1016/j.pacfin.2026.103224
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