Regional AI development and firms’ cost of equity capital: Evidence from China’s AI pilot zones

In this study, we investigate whether AI-oriented regional policy reduces firms’ cost of equity capital. Using a sample of Chinese A-share listed firms from 2006 to 2024, we exploit the establishment of China’s National New Generation Artificial Intelligence Innovation and Development Pilot Zones (AIIDPZ) as a quasi-natural experiment. Our findings indicate that AIIDPZ exposure significantly reduces firms’ cost of equity capital. The results remain robust after a series of robustness tests. The mechanism through which AIIDPZ reduces the cost of equity capital is by improving firms’ human capital structure, enhancing ESG performance, and promoting green innovation, thereby strengthening firms’ growth prospects and the information environment perceived by investors. Furthermore, the effects of AIIDPZ are more pronounced among non-state-owned firms, high-polluting firms, and high-tech firms. Overall, our study contributes to the literature on AI development and the cost of equity capital by showing that a regional AI innovation ecosystem can shape investors’ required returns, providing new evidence that technology-oriented place-based policies have important capital-market consequences beyond innovation and industrial upgrading.