Digital infrastructure and the cost of debt: evidence from “BroadBand China” policy

Purpose This paper explores the linkage of digital infrastructure to the cost of debt. Design/methodology/approach This study uses the implementation of the “Broadband China” policy that improves digital infrastructure as an exogenous shock and exploits the difference-in-differences method (DID). Findings Empirical analyses show that digital infrastructure leads to increased firms’ borrowing costs, which is robust to several robustness checks. In addition, we find that this unfavourable effect can be attributed to intensified market competition led by digital infrastructure construction. Cross-sectional analysis shows that this effect is greater for non-SOEs and smaller firms. Finally, we offer additional evidence of the unfavourable effect by showing that digital infrastructure construction leads to decreased fundamentals. Originality/value Our paper unveils how digital infrastructure construction affects firms’ business strategy in using private debts and extends the determinants of firms’ borrowing costs.