Digital Finance and Regional Financial Risk: Evidence from Leverage, Default, and Housing-Market Channels in Eastern China

As digital transformation continues to reshape financial intermediation and resource allocation in emerging markets, maintaining regional financial stability has become increasingly important. Using panel data for 88 prefecture-level cities in eastern China from 2011 to 2023, this study examines the relationship between digital finance and regional financial risk using two-way fixed-effects and instrumental-variable models. The results show that greater digital finance usage depth is associated with significantly lower regional financial risk, with the finding supported by multiple robustness and identification checks. Mechanism analyses provide evidence consistent with household-leverage restraint and reductions in average and tail default risks. Under high-house-price state, positive housing-price shocks exert stronger risk-amplifying effects, while the risk-mitigating effect of digital finance becomes more pronounced. These findings provide city-level evidence on how digital finance may strengthen financial resilience in regions undergoing rapid digital transformation.