Digital Transformation of Government and Firms’ Reallocation from Financialization to the Real Economy: An Analysis Based on Investment Structure Bias
WANG Ao, SUN Weizeng, ZHANG Qilin, PENG Yuchao
School of Economics/School of Finance, Central University of Finance and Economics; Joint Research Institute, Nanjing Audit University; Department of Economics, Hong Kong University of Science and Technology
Summary:
In recent years, the rising tendency of corporate financialization has become a prominent structural challenge to the development of the real economy in China. While firms increasingly allocate resources to financial assets, real investment has been relatively crowded out, potentially undermining long-term productivity growth, innovation capability, and economic resilience. Existing studies have emphasized policy incentives such as subsidies and tax reductions as tools to encourage firms to invest in the real economy. However, such direct interventions may distort market signals and reduce investment efficiency. Against this background, this paper explores whether the government digital transformation, an institutional reform driven by digital technologies, can guide firms to reallocate resources from financial assets back to real investment without relying on direct interventions. This study incorporates digital government development into a unified analytical framework of firms’ investment structure choices. We construct a theoretical model in which firms optimally allocate their resources between real and financial investment under financing constraints, institutional transaction costs, and uncertainty. In the model, digital government development affects firms’ investment decisions through multiple channels, including reducing institutional transaction costs, easing financing constraints, lowering uncertainty perceptions, and improving expected returns on real investment. The theoretical analysis yields clear comparative statics predictions regarding the impact of digital government on firms’ total investment scale and investment structure. To empirically test these predictions, we combine data on Chinese A-share listed firms from 2017 to 2022 with detailed information fromannual work reports of local government websites. A comprehensive index of digital government development is constructed to reflect the extent of digital transformation in local governance. Firm-level investment structure is measured by distinguishing between real investment and financial asset allocation. The empirical strategy controls for firm characteristics, regional factors, firm fixed effects, and region-by-year fixed effects. The main findings are as follows. First, digital government development significantly increases firms’ overall investment scale. More importantly, it promotes real investment while restraining excessive financial asset allocation, thereby facilitating firms’ reallocation from financialization toward the real economy. This effect remains robust across alternative specifications and variable definitions. Second, mechanism analyses show that digital government development operates through several key channels. Specifically, digital government significantly reduces firms’ institutional transaction costs by improving administrative efficiency, standardizing approval procedures, and enhancing transparency. It also alleviates financing constraints by improving information sharing between firms and financial institutions and by strengthening credit infrastructure. In addition, digital government reduces the perceived policy uncertainty of firms through greater policy transparency and predictability, while simultaneously improving the expected returns on real investment by providing more timely and accurate information on industrial policies, market demand, and economic conditions. Third, heterogeneity analyses reveal that the positive effect of digital government on firms’ reallocation toward real investment is more pronounced for non-state-owned firms, smaller firms, firms in strategic emerging industries, and firms with higher levels of digitalization. At the regional level, the effect is stronger in areas with higher marketization, more developed financial systems, and better digital infrastructure. These findings suggest that digital government development complements market mechanisms and institutional environments, amplifying its impact in regions where firms are more responsive to improvements in governance quality. Fourth, further analyses indicate that digital government development helps alleviate firms’ underinvestment problems, enhances investment efficiency, and restrains short-term, liquidity-driven investment behavior. By improving the investment environment rather than directly intervening in firms’ decisions, digital government encourages firms to adopt a longer-term perspective and allocate resources more efficiently. Overall, this study makes three main contributions. First, it extends the literature on corporate investment by highlighting the role of government digital transformation as an institutional determinant of firms’ investment structure. Second, it provides a systematic theoretical framework and empirical evidence on how digital government influences both the scale and composition of firm investment. Third, it offers important policy implications by showing that digital government development represents an effective governance approach to promoting the real economy while preserving market efficiency. These findings underscore the importance of advancing digital government construction as a key component of modern governance and high-quality economic development in the digital economy era.
王傲, 孙伟增, 张齐林, 彭俞超. 政府数字化转型与企业脱虚返实——基于企业投资结构偏向的分析[J]. 金融研究, 2026, 553(7): 133-150.
WANG Ao, SUN Weizeng, ZHANG Qilin, PENG Yuchao. Digital Transformation of Government and Firms’ Reallocation from Financialization to the Real Economy: An Analysis Based on Investment Structure Bias. Journal of Financial Research, 2026, 553(7): 133-150.
