Using a panel of Chinese listed firms from 2017 to 2023 matched with city-level business environment data, this paper examines the effect of business environment optimization on firm investment. The results show that business environment optimization significantly promotes firm investment. Further analysis shows that credit availability positively moderates the relationship between business environment optimization and firm investment. Mechanism tests suggest that business environment optimization promotes firm investment by lowering institutional transaction costs, strengthening factor supply resilience, and improving contract protection and credit diffusion. Heterogeneity analysis indicates that the positive effect is more pronounced in cities with a more open and competitive local ecosystem and in those with lower digital government maturity. This paper highlights the importance of local institutional quality in shaping corporate investment and provides implications for coordinating business environment reform with financial support policies.
Yang et al. (Mon,) studied this question.
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