This study examines how city-level digital finance influences venture capital (VC) investments in China. Using panel data for 225 Chinese cities from 2014 to 2019, combined with the Peking University Digital Finance Index and VC deal data from Zero2IPO, we examine whether digital finance affects VC deal frequency and average investment size. We find that digital finance significantly increases the number of VC deals, but has no significant effect on average investment amounts. The results remain robust when extending the sample to 2022, addressing endogeneity through an instrumental variable strategy, and conducting additional robustness tests. Further analyses show that the effect is mainly driven by usage depth and digitalization level rather than coverage breadth. Evidence based on a city-level commercial credit environment index suggests that improvements in the broader local credit environment may partly explain the effect. The effect is particularly pronounced for high-tech and early-stage ventures, where information problems are more severe. Overall, our findings suggest that digital finance facilitates VC activity by improving the information and transaction infrastructure surrounding entrepreneurial finance.
Lin et al. (Tue,) studied this question.