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Regional digital finance and corporate investment efficiency in China

Author

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  • Zhuo Huang
  • Yunqing Tao
  • Xin Luo
  • Yongwei Ye
  • Tianyi Lei

Abstract

Digital finance has a substantial effect on macroeconomics and plays an important role in corporate investment behaviour. However, few studies examine how digital finance affects corporate investment efficiency. We use the data of Chinese A-share listed companies for 2011–2017 and the provincial digital finance index developed by Peking University to document that digital finance significantly improves corporate investment efficiency. Our findings are supported by extensive robustness tests. In addition, we identify two mechanisms by which digital finance may affect corporate investment efficiency: by reducing financing constraints and stimulating corporate innovation. We find that digital finance has a more pronounced effect on non-state-owned enterprises, small firms, firms in the central and western regions of China, firms with fewer loans, and firms with a higher dependence on external financing, indicating that digital finance increases the inclusiveness of financial markets. Finally, our economic consequences test shows that digital finance increases the total factor productivity of firms. Overall, this study provides insights for developing countries. In particular, it suggests that digital finance can increase firms’ resource allocation efficiency.

Suggested Citation

  • Zhuo Huang & Yunqing Tao & Xin Luo & Yongwei Ye & Tianyi Lei, 2023. "Regional digital finance and corporate investment efficiency in China," Applied Economics, Taylor & Francis Journals, vol. 55(43), pages 5115-5134, September.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:43:p:5115-5134
    DOI: 10.1080/00036846.2022.2136616
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    Cited by:

    1. Tao, Yunqing & Kong, Dongmin & Sun, Nan & Li, Xiaofan, 2024. "Social credit and corporate risk-taking: Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    2. Shao, Fangjing & Jiao, Ziyan & Jin, Tianquan & Zhu, Xingwang, 2024. "Bridging the gap: Digital finance's role in addressing maturity mismatch in investment and financing for agricultural enterprises," Finance Research Letters, Elsevier, vol. 64(C).
    3. He, Xinao & Xu, Runguo & Sun, Kai & Wang, Jian, 2024. "Population intensity, location choice, and investment portfolio selection: A case of emerging economies," International Review of Financial Analysis, Elsevier, vol. 94(C).
    4. Xu, Chang & Jin, Long, 2024. "Effects of government digitalization on firm investment efficiency: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 819-834.
    5. Weiwei Yang & Yingying Hei, 2024. "Research on the Impact of Enterprise ESG Ratings on Carbon Emissions from a Spatial Perspective," Sustainability, MDPI, vol. 16(9), pages 1-20, May.
    6. Zhang, Yuxi & Cheung, Adrian (Wai Kong) & Qu, Xiaodong, 2024. "Can digital financial inclusion promote the coupling coordination between pollution reduction and low-carbon development? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1113-1130.
    7. Liuyang Xue & Junan Dong & Shiyao Jiang, 2024. "Digital financial development and inefficient investment: a study based on the dual perspectives of resource and governance effects," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-10, December.
    8. Wang, Xiqian & He, Zongyue, 2024. "Household response to health shocks: Does broadband infrastructure have a role to play?," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1353-1370.
    9. Li, Xiaofan & Ye, Yongwei & Liu, Zhaoda & Tao, Yunqing & Jiang, Jingjing, 2024. "FinTech and SME’ performance: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 670-682.

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