Information Technology Infrastructure and the Cost of Equity Capital: Evidence from “Broadband China” Strategy

This research examines the impact of information technology (IT) infrastructure on the cost of equity (COE) capital, particularly within the context of an emerging market. Drawing on the staggered rollout of the “Broadband China” strategy to provide exogenous variation, we identify a significant decline in corporate COE following the IT infrastructure upgrade. Through rigorous mechanism analyses, we demonstrate that the strategy causally enhances corporate information transparency, mitigates agency conflicts, and improves stock liquidity. Furthermore, our cross-sectional analyses reveal a profound heterogeneity regarding the policy’s efficacy. At the macro and meso-levels, the decline in COE is more salient in cities featuring stronger policy implementation and a larger tertiary sector, as well as in regions characterized by lower marketization levels. At the firm level, the reduction in COE is more pronounced for firms facing greater business complexity, operational risks, and retail investor exposure. Overall, our results highlight that IT infrastructure helps bridge information gaps and strengthens external monitoring, ultimately promoting optimal capital allocation efficiency across financial markets.