Summary:
Investment in risky financial assets is a critical topic in household finance, bearing significant implications for increasing household property income and fostering the healthy development of financial markets. The Third Plenary Session of the 20th CPC Central Committee emphasized the need to increase urban and rural residents' property income through multiple channels, and to advance the five major areas in the financial sector (technology finance, green finance, inclusive finance, pension finance and digital finance). However, household participation in China's risky financial markets has remained low. This limited participation not only constrains households' ability to accumulate wealth and diversify risks through financial investments but also highlights the urgency for financial innovation. In recent years, digital infrastructure has emerged as a vital driving force and strategic domain for socioeconomic development, profoundly reshaping the financial ecosystem, information environment, and social networks. These transformations may exert a systematic influence on household investment decisions. Thus, investigating how digital infrastructure impacts household investment in risky financial assets holds significant theoretical and practical value for understanding household financial behavior in the digital age and advancing the development of inclusive finance. This paper aims to analyze whether and how digital infrastructure influences household investment in risky financial assets. We employ an approach that combines theoretical and empirical analyses. First, drawing on intertemporal asset allocation theory and institutional economics, we incorporate digital infrastructure into the framework of household utility maximization and introduce an institutional friction cost function. This function delineates the mechanism through which digital infrastructure influences household investment decisions via channels such as reducing market frictions, enhancing financial accessibility, alleviating information asymmetry, and improving financial literacy, while emphasizing the synergistic effect of technology penetration and the institutional environment on the demand for risky assets. Second, we utilize the Chinese government-led “Broadband China” policy (piloted in three batches from 2014 to 2016) to design a quasi-natural experiment. Using data from the China Household Finance Survey (CHFS) covering the period 2011-2019, we employ the difference-in-differences (DID) method and event study methodology to identify the causal effects of digital infrastructure. Additionally, we conduct robustness checks using methods including PSM-DID, instrumental variable approach, placebo tests, and exclusion of confounding factors. For the mechanism analysis, we also use both macro and micro data such as the The Peking University Digital Financial Inclusion Index of China and Baidu Index. The main findings are as follows: First, digital infrastructure significantly enhances household allocation to risky financial assets. The policy increased the probability of households investing in risky financial assets by 3.5 percentage points (25% of the pre-policy mean), the investment amount by 41%, and the portfolio share by 1.6 percentage points (29% of the pre-policy mean). Crucially, the policy effect exhibits a time-progressive dynamic pattern, revealing the long-term cumulative nature of technological penetration and institutional arrangements. Second, compared to low-income, low-education, and rural households, high-income, high-education, and urban households exhibit significantly higher participation rates in risky financial markets. This finding provides micro-level evidence supporting the digital divide theory and indicates that resource endowment disparities profoundly shape the real-world effectiveness of technology-driven inclusive finance policies. Third, mechanism analysis demonstrates that digital infrastructure reshapes household investment behavior through multiple channels: promoting digital finance development (especially expanding coverage and deepening implementation), broadening information access channels, enhancing financial literacy, and strengthening social networks and social trust. Policy implications are as follows: (1) Reinforce the strategic supporting role of digital infrastructure, advancing R&D and application of technologies deeply integrated with financial services to solidify the foundational ecosystem of digital finance. (2) Optimize the digital financial ecosystem by upgrading inclusive finance platforms and the credit reporting system to precisely respond to household needs (e.g., credit, wealth management) and enhance service inclusivity. (3) Bridge the digital dividend imbalance by employing targeted subsidies to promote the penetration of low-threshold financial services into rural areas, and implementing digital skills and financial literacy training programs to activate the investment capabilities of vulnerable groups. (4) Foster a secure financial environment by strengthening regulation of digital finance businesses and high-risk investments, preventing financial fraud, cultivating social trust, and guiding rational investment.
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