Does fintech facilitate enterprise outward foreign direct investment? Evidence from China

Abstract

We examine whether and how fintech affects OFDI decision making by using data on listed Chinese companies. We find that the development of regional fintech stimulates OFDI. This effect is more pronounced for firms without political connections, in the eastern region, with production-oriented OFDI and that are nonstate-owned. Fintech supports firms in carrying out OFDI through the mitigation of financing constraints and the promotion of technological innovation. We emphasize the role of technology-enabled financial innovation in the behavior of enterprise internationalization.

KEYWORDS:

• Fintech
• oFDI
• financing constraints
• technological innovation
• China

JEL CLASSFICATIONS:

• F21
• G29

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 A high-tech company under JD Group.

2 One of the four major state-owned commercial banks in China.

3 A subsidiary of the largest e-commerce enterprise in China, Alibaba Group.

4 Ant Group is one of the largest online financial service platforms in China.

5 For detailed information on the methodology used to compile this index, please refer to https://en.idf.pku.edu.cn/docs/20190610145822397835.pdf

6 We only include CEO and chairperson of the board as managers because they play a key role in a firm’s OFDI decision-making according to Chen et al. (2006).

7 Background is a dummy that equals 1 if a firm has a chairperson or CEO who have been employed in the financial services industry or in a finance-related role (accountant, CFO, or vice president of finance) or in one of the four major accounting firms (Pw, Deloitte, Ernst & Young, and KPML).

8 The detailed description about the measure of corporate digital transformation is available in Wu et al. (2021).

9 The data are from the Ministry of Commerce of China (MOC). MOC requires each Chinese OFDI enterprise to report detailed investment activities since 1980, including the following information: company name, name of foreign subsidiary of the company, type of ownership (i.e., state-owned or private enterprise) and investment models (trade offices, wholesale centers, production subsidiaries, foreign resource utilization, processing trade, consulting services, real estate, research and development centers, and other unspecified types). Here, trade offices and wholesale centers are classified as distribution-oriented FDI, whereas others are referred to as production-oriented FDI. Because MOC only released data from 1980 to 2015, whereas the year of listed companies in this article is 2012 to 2021, the most recent year's data on OFDI companies published by MOC is used to match the company name with that of the listed company; thus, listed companies’ OFDI types are classified. To facilitate a comparative analysis, we eliminate firms that engage in both types of investments.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant number: 72373135]; the National Social Science Fund of China [grant number: 23BGJ009].