The investment attraction effect of financial technology: evidence from China

Frontier technologies, such as artificial intelligence, when deeply integrated with traditional finance, give rise to financial technology (Fintech), which continuously influences cross-regional capital flows. We examine the development of Fintech in Chinese prefecture-level cities, using data on cross-regional investments by A-share listed firms, and empirically analyze the attraction effect and mechanisms of Fintech development. The results indicate that Fintech has a significant investment attraction effect, which can attract nonlocal firms to invest locally. Mechanism tests show that Fintech attracts nonlocal firms’ investment by reducing firms’ financing and business costs, while also improving cities’ innovation levels and entrepreneurial vitality. Heterogeneity analysis reveals that the investment attraction effect of Fintech is more significant when the investment destination is a core city, has a high level of human capital, possesses high-speed rail connections, and is located in the same province as the firms’ registration. Additionally, if the firm’s CEO is from the investment destination, or if the firm has a higher level of diversification, the attraction of Fintech to the firm’s cross-regional investment is significantly enhanced. Further analysis demonstrates that after Fintech attracts investment from nonlocal firms, it not only enhances firms’ market value but also promotes income growth for local residents.