City digital economy development and foreign divestment: Evidence from China

This research examines the city’s digital economy development and foreign investment in China. Foreign investment plays a vital role in China’s economic rise. How to prevent foreign investment exiting China is critical for ensuring stability in foreign investment in China. This study focuses on the impact and mechanism of the city’s digital economy development on foreign divestment. Based on Probit and Tobit regression models, using a comprehensive dataset of cities and listed companies from 2011 to 2020, we find that the China's city digital economy development has significantly reduced foreign divestment decisions and the amount of foreign divestment. China's city digital economy development positively affects foreign divestment by reducing financial constraints and financing costs. The influence of city digital economy development on foreign divestment is significant in technology-intensive enterprises and capital-intensive enterprises and not significant in labor-intensive enterprises. These findings present new practical insights for guiding the digital transformation of enterprises, along with reinforcing the development of new information technology infrastructure and enhancing internet coverage, fostering a favorable financial environment, and implementing differentiated policies for the development of digital economy across industries.