Strong financial regulation and enterprise digital innovation: promoting or inhibiting?

Modern financial regulatory systems are vital in bridging the gap between digital and real economies. In this context, enterprises have the opportunity to achieve digital innovation transformation. This study examines the causal relationship between strong financial regulation and enterprise digital innovation using a quasi-natural experiment, focusing on the ‘Guiding Opinions on Regulating the Asset Management Business of Financial Institutions’ (NAMR). We observed a significant improvement in enterprises’ level of digital innovation after the NAMR implementation. Channel analysis confirms the micro-mechanisms of strong financial regulation, eased corporate financing constraints, increased R&D investment, and digital innovation. Furthermore, digital innovation driven by strong financial regulation can significantly improve corporate profitability. We also found that the positive effect of strong financial regulation on enterprise digital innovation is particularly significant in non-state-owned enterprises, highly competitive industries, and regions with high financial development levels. This study expands the understanding of how strong financial regulation affects enterprises’ digital innovation, with practical significance for understanding the relationship between financial regulation, corporate financial investment, and innovation decision-making.