Debt pressure and flexibility trade-offs: short-term debt and financial flexibility as a transmission channel between digital financial inclusion and firms’ financial vulnerability

This paper applies Minskyan framework to examine how digital financial inclusion affects financial vulnerability by shaping firms’ transitions across Hedge, Speculative, and Ponzi financing positions. Using a balanced panel of more than 1,900 Chinese A-share listed firms from 2011 to 2023, we employ OLS, ordered logit models, and Karlson–Holm–Breen decomposition to identify the underlying balance-sheet mechanisms. Results show that higher digital financial inclusion significantly reduces the likelihood that firms shift toward more fragile financing regimes. This stabilizing effect operates through two channels: short-term debt dependence and financial flexibility. Digital financial inclusion lowers firms’ reliance on short-term borrowing while also reducing internal liquidity buffers. Short-term debt dependence is the dominant channel, accounting for 35–45% of the total effect in single-mediator models and nearly 80% in joint mediation, whereas financial flexibility contributes a smaller but significant share. As digitalization deepens, the relative importance of the liquidity-buffer channel increases. Interaction analysis indicates that weak internal liquidity amplifies vulnerability associated with short-term refinancing. Overall, digital financial inclusion enhances corporate resilience primarily by easing refinancing pressure, while generating trade-offs in liquidity management. It provides firm-level evidence on how digital finance reshapes balance-sheet risk and contributes to financial stability, offering insights for policymakers and practitioners.