Abstract
Using data from China's A-share market, this study identifies that regional digital finance development significantly increases corporate investment inefficiency. This is because digital finance increases enterprises’ access to finance by reducing financing constraints. Digital finance development materially exacerbates corporate investment inefficiency by loosening financial regulations. The deterioration is not significant amid tightening financial regulations. While deterioration is significantly positive in non-state-owned enterprises (non-SOEs), it is not significant in state-owned enterprises (SOEs). The findings suggest that the government and firms must consider consequent investment risks amid digital finance development.
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