Description:
Exploiting quasi-exogenous variations in the timing of telegraph construction, the reduction of information costs promotes capital market integration in late imperial China. Employing a difference-in-differences strategy, we find that the telegraph connection within a prefecture pair reduced the difference in interest rate by 1.60 percentage points. Evidence from the textual analysis of historical documents suggests that the integration effect was driven by the information mechanism of the telegraph. In addition, the telegraph complements the institutional quality and transportation accessibility by enhancing capital market integration. Finally, nonlocal financial intermediaries have augmented the telegraph’s effect on capital market integration. This augmenting effect of traditional banks (piaohao) on the capital market integration of the telegraph, however, only occurred within firm boundaries