The paradox of financial process reengineering: efficiency gained vs. financial flexibility reduced

Digital transformation has increased pressure on firms to redesign finance processes, yet evidence on the flexibility consequences of such redesign remains limited. This study examines whether financial process reengineering in the finance function, proxied by financial shared service center (FSSC) adoption, is associated with lower financial flexibility. Using a panel of Chinese A-share non-financial listed firms from 2013 to 2022, the analysis combines fixed-effects regressions with a staggered event-study difference-in-differences design based on first-adoption timing inferred from the Management Discussion and Analysis section of annual reports. The baseline estimates show a negative association between FSSC adoption and overall financial flexibility, and the reduction is more pronounced for cash flexibility than for debt flexibility. The timing-based evidence shows jointly insignificant lead coefficients within the plotted pre-adoption window and negative post-adoption dynamics, with the strongest declines emerging one to two years after first adoption. Additional mechanism evidence indicates that investment becomes less sensitive to internally generated cash after adoption, while indirect proxies show higher selling, general, and administrative (SG&A) intensity and lower external financing constraints. Overall, the findings are consistent with weaker internal liquidity redeployment after adoption. They suggest that firms should evaluate shared-service reforms not only by cost savings and process standardization, but also by their implications for liquidity responsiveness and internal capital allocation.