image: Columns 1 and 2 present the results using COD1 to measure firms’ borrowing costs, whereas Columns 3 and 4 show estimated results using COD2 to gauge the cost of debt. As reported, the estimators of Broadband are significantly positive in Columns 1 and 2, with significance at 1% levels, denoting that digital infrastructure leads to increased corporate borrowing costs. In addition, the estimators of Broadband are still significant and positive when we exploit COD2 to measure firms’ borrowing costs. Moreover, the magnitudes of the estimators on Broadband are also economically sizable. To be specific, digital infrastructure results in a 7.8% (9.17%) increase in firms’ borrowing costs measured by COD1 (COD2). Accordingly, our baseline result implies that digital infrastructure is statistically and economically significant and is positively related to firms’ borrowing costs, which supports that digital infrastructure is positively related to firms’ borrowing costs.
Credit: Yan Jiang (Shanghai University of Finance and Economics, China) Dayong Lv (Shanghai Lixin University of Accounting and Finance, China) Suyu Hao (Tongji University, China) Xiaokun Wei (Tongji University, China) Youyi Wu (The University of Chicago, Chicago, USA)
Background and Motivation
As broadband internet becomes essential to socioeconomic development, digital technology alters how companies operate and manage their financing. However, existing research mainly focuses on the impact of digital infrastructure on macroeconomic performance or corporate innovation, with limited attention paid to its direct effect on debt financing costs. The nature of China’s financial market—where firms rely heavily on bank loans—makes this issue especially relevant. Drawing on China’s 'Broadband China' policy, this study provides the first systematic analysis of how digital infrastructure affects corporate debt costs, filling key theoretical and empirical gaps.
Methodology and Scope
The study adopts a Difference-in-Differences (DID) approach, leveraging the quasi-natural experiment created by the phased implementation of the “Broadband China” policy from 2014 to 2016 across 120 pilot cities. This exogenous policy shock allows the identification of the causal impact of digital infrastructure on debt costs.
Key Findings and Contributions
- Theoretical Advancement: This study is the first to reveal that digital infrastructure can increase corporate debt costs by intensifying market competition, challenging the traditional view that enhanced information transparency reduces financing costs.
- Policy Insights: It finds that non-state-owned and smaller enterprises are more significantly affected by the competitive pressures, offering a basis for differentiated regulatory responses.
- Methodological Innovation: This study integrates macro-level policy shocks with micro-level corporate data to demonstrate the impact of digital infrastructure on financing costs via intensified market competition.
Why It Matters
The findings hold dual significance for businesses and policymakers:
- For Firms: Firms need to be aware of the potential hidden financing risks associated with digital infrastructure and adapt by streamlining their debt structures and strengthening their competitive edge.
- For Policymakers: The rollout of digital infrastructure should be coordinated with anti-monopoly measures to prevent excessive competition from threatening the survival of SMEs.
The full text is available for download as a PDF and is intended to inform and inspire a wide range of readers.
Journal
China Finance Review International
Method of Research
News article
Article Title
Digital infrastructure and the cost of debt: evidence from “BroadBand China” policy
Article Publication Date
27-Feb-2025