Digital infrastructure investment and corporate debt concentration: Evidence from a quasi-natural experiment

Abstract

This study examines the relationship between digital infrastructure investment and corporate debt concentration. Investing in digital infrastructure facilitates communication and reduces creditors' information acquisition costs, which enhances their monitoring capabilities and improves the information environment. Utilizing the phased introduction of the “Broadband China” strategy in demonstration cities as a quasi-natural experiment, our staggered difference-in-differences analysis reveals that this policy intervention reduces debt concentration in demonstration cities. This suggests that enhanced digital infrastructure and subsequent improvements in the information environment enable a more diversified corporate debt structure. Our findings remain robust when subjected to various sensitivity analyses, including alternative samples, estimation methods, variable measurements, dynamic analysis, placebo tests, and propensity score matching. Furthermore, the cross-sectional analysis reveals that the impact of digital infrastructure investment is more pronounced for companies with greater default risk and lower accounting quality. Finally, we provide evidence of the economic outcomes of digital infrastructure development, indicating that the profitability of the treated firms increases with a more dispersed debt structure following the implementation of the “Broadband China” strategy. Overall, this study offers novel insights into the financial implications of digital infrastructure investment in China, particularly in terms of facilitating information acquisition.