Digital finance and capital mobility: Evidence from cross-regional investment of listed companies in China

This study examines the role of digital finance in dismantling regional barriers to capital flow and in fostering the creation of a unified market. Using the provincial-level digital finance index and data on subsidiaries by listed companies, we demonstrate how digital finance index effectively enhances cross-regional investment. Our findings are robustly supported by extensive tests. We propose two potential mechanisms through which digital finance may influence the level of cross-regional investment by listed companies: first, by reducing the degree of segmentation in capital markets between regions and second, by lowering firms' capital costs and financial constraint. Our results indicate that the impact of digital finance on cross-regional investment is particularly pronounced in environments with higher competition, and among companies without political connections. Additionally, our research indicates that in regions with higher financial regulation, digital finance can better facilitate capital flow. This study provides new research perspectives and evidence on the influence of digital finance on the development of the real economy and the promotion of capital mobility.