Does big data promote firms’ leverage ratios? Evidence from China’s national comprehensive big data pilot zones

Research on the impact of the digital economy on corporate finance is burgeoning. However, the investigation into its effects on firms’ leverage ratios remains limited. In this paper, we explore the influence of China’s National Comprehensive Big Data Pilot Zones (BDPZ) on firms’ leverage ratios, using a sample of A-share listed firms from 2008 to 2021. Utilizing a difference-in-differences approach, we find that the BDPZ policy plays a significantly positive role in promoting firms’ leverage ratios, a result is robust across various tests. Mechanism analysis demonstrates that pilot zones initiative improves firms’ data asset disclosure, fosters the application of digital technologies and reduces financial risk, thereby increasing leverage ratios. Heterogeneity analysis shows that the BDPZ policy substantially promotes leverage ratios for firms with higher productivity, higher initial levels of digitalization, and that are non-state-owned. Moreover, firms facing higher financing constraints and lower political sensitivity exhibit more pronounced effects. Our research, by providing rigorous empirical evidence for understanding the interaction between government policy and firm financial performance in the context of the digital economy, holds significant policy implications for stability of financial system, especially for developing countries such as China.