E2026010                                                                             2026-05-25

 Yang Yao

Di-shui-hu Advanced Finance Institute, Shanghai University of Finance and Economics,

&

China Center for Economic Research and National School of Development, Peking University

Email: yyao@nsd.pku.edu.cn

&

Ling Yu

China Center for Economic Research and National School of Development, Peking University

Email: yling@pku.edu.cn

ABSTRACT: We propose and test an unexplored collateral channel for government infrastructural investment to crowd in private-sector financing by exploiting the variations created by China’s subway expansion. We purposefully build a geo-financial dataset that links private firms with their nearest new subway stations. Using a firm-level stacked difference-in-differences research design, we find that the introduction of a new subway station is associated with an increase of 4.30 percentage points — equivalent to 12.44% of the sample mean — in the debt/asset ratio of private firms located within a 1-kilometer radius of the station. We also find that the values of firms’ production structures and land holdings have increased following the opening of a nearby subway station and higher values of these assets increase firms’ external financing.

Keywords: government investment; financial accelerator; subways; private-firm financing; collateral values

JEL Classifications: G14; G18; G34 

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[1] We appreciate the helpful comments and suggestions from participants at workshops held at Peking University, Shanghai University of Finance and Economics, China-Europe International Business School, East China University of Science and Technology, Beijing Technology and Business University, Minzu University of China, and Guangdong University of Foreign Studies, as well as from participants at the 25^th Guangdong Young and Middle-aged Economists Forum, the 8^th National Development Youth Forum, and the 11^th Indonesian Finance Association (IFA) International Conference. We are accountable for the remaining errors, if any, in the paper. Ling Yu is the corresponding author.