How does digital infrastructure affect cross-regional capital flows: micro evidence from Chinese-listed companies with off-site subsidiaries

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By extending the New Economic Geography model by incorporating digital infrastructure and firm location choices, this paper focuses on how digital infrastructure shapes cross-regional capital flows. Using a ‘company-city pair-year’ panel of fourth-generation (4 G) mobile communication base stations and off-site subsidiaries of listed companies from 2014 to 2023, we find that a 1% increase in digital infrastructure will lead to a 0.0158% increase in off-site subsidiaries. This finding remains robust to endogeneity corrections, including instrumental variables (IV), double machine learning, difference-in-differences (DID) and lag tests. Mechanism analysis shows that digital infrastructure attracts off-site subsidiaries by reducing information and institutional costs and by expanding market size and innovation resources. Stronger positive effect in communication‑dependent industries, non‑state‑owned firms, the service sector, and firms with higher technological intensity indirectly support the proposed mechanism. Further discussion reveals that the positive effect is concentrated within a limited geographic range and declines with distance. Moreover, this process generates a siphoning effect, with developed regions attract capital from underdeveloped ones, and creates a win–win situation for both capital inflow and outflow parties. Our findings provide valuable insights into eliminating market fragmentation and promoting regional coordination development in the digital economy era.