Research

Invoice Digitization and Credit Availability: Hard-Information Effects in Small Business Lending              

Job Market Paper 

Presentations:  

2026: RES; EFMA & Dcotoral Seminar; Durham Job Market Paper Conference; 2nd HKU Next-Gen Finance PhD Workshop; Munich Summer Institute; 4th Georgia Tech–Atlanta Fed Household Finance Conference; SWFA

2025: SBFC

Abstract: This paper study the impact of digitized invoices on small business lending through China's Golden Tax Phase III Project, which established a unified tax reporting system and digitalized VAT invoices. Using the project's staggered provincial rollout as a natural experiment and DID method, this study find that small business in treated provinces obtain substantially larger credit line, pay lower interest rate, and enjoy longer maturities. Banks also report higher measured income and internal credit scores from these firms. We trace these improvements to the elimination of fraudulent invoices, which endows banks with more reliable hard information for income assessment and risk- based pricing. As a result, digital invoices mitigate information asymmetries in lending, allowing banks to extend greater and lower-cost credit to firms lacking hard information. Consistent with this mechanism, the largest credit gains occur in invoice-intensive industries, and the most opaque borrowers, such as individually-owned businesses, and small banks experience the greatest benefits. Finally, macro-level credit data from the People’s Bank of China corroborate our micro-level findings. In general, this study highlights the critical role of digital tax infrastructure in alleviating financing frictions for small businesses and underscores its wider importance for financial inclusion and economic growth.