The role of information exchange and financial services in cross-regional investment: A study on the impact mechanism of high-speed rail connectivity

The rapid construction of high-speed rail (HSR) in China has significantly reduced the costs associated with the circulation of factors and has profoundly influenced the cross-regional investment behavior of enterprises. The primary objective of this paper is to examine how bilateral high-speed rail connectivity impacts the cross-regional mergers and acquisitions (M&A) investments of manufacturing firms by facilitating the exchange of information and enhancing financial linkages between regions. Using data from the BVD-Zephyr M&A transaction database regarding domestic cross-regional M&A activities and financial information from the BVD-Oriana Asia-Pacific Corporate Analysis Database, we constructed a dataset comprising pairs of acquiring firms and target cities within the period from 2013 to 2021. An empirical analysis was conducted employing a staggered difference-in-differences (DID) methodology. The findings indicate that, following the establishment of bilateral high-speed rail connectivity, there was a notable increase in both the quantity and value of enterprise M&A investments between cities. Mechanism analysis reveals that high-speed rail connectivity alleviates information asymmetries by fostering inter-regional information exchange and strengthening financial services relationships. This, in turn, aids firms in overcoming financing and operational challenges during cross-regional mergers and acquisitions. Furthermore, as a crucial transportation mode for medium- and short-distance travel, high-speed rail has a more pronounced stimulating effect on investments in neighboring cities, particularly for private enterprises facing significant financing constraints. This study deepens the understanding of the relationship between the opening of high-speed rail services between cities and the cross-regional investments of firms, while also providing policy implications for accelerating the development of a unified domestic market.