From digital finance to innovation: The trust bridge in China

Abstract This study examines the impact of digital finance on innovation across 286 Chinese cities and listed firms from 2011 to 2020. Employing a multi‐level analytical framework, we demonstrate that digital finance exerts a consistently positive effect on innovation outcomes at both macro and micro dimensions. Notably, spatial econometric analysis reveals significant spillover effects, whereby digital finance development in one city enhances innovation performance in neighboring regions. Mechanism analysis identifies social trust as a critical mediator in the digital finance‐innovation relationship. Heterogeneity tests further show that the effect is more pronounced in central, eastern, and western regions, non‐provincial capitals, and smaller cities. At the firm level, startups, mature enterprises, and non‐state‐owned enterprises derive disproportionately larger benefits. Additionally, digital finance contributes not only to the quantity of innovation but also to its quality. These findings offer novel insights for policymakers in emerging economies, highlighting the role of digital financial infrastructure and social capital in fostering innovation ecosystems.