Does technology innovation in finance alleviate financing constraints and reduce debt-financing costs? Evidence from China

ABSTRACT

We use Chinese listed firms from 2011 to 2018 to explore whether and how financial technology impacts corporate debt-financing constraints and costs. Using two forms of financial technology cases in China, we explain why technology innovation in the financial industry flourishes and contributes to alleviating debt-financing constraints and reducing debt-financing costs. We empirically document that financial technology helps alleviate firms’ financing constraints and reduce firms’ debt-financing costs. We also find that financial technology plays a more significant role for private-owned firms, small firms, growth-stage firms, and firms under intense financial supervision.

KEYWORDS:

• China
• corporate financing
• debt-financing costs
• digital finance
• financing constraints
• Fintech

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Huabei is a consumer credit product. People can apply for 500–50,000 yuan consumption loan quota according to their online shopping and payment habits, credit risks, and so on. Jiebei is a loan product. People can apply for 1,000–300,000 yuan loan quota according to their Zhima Credit scores. Jiebei has a maturity of up to 12 months and a daily interest rate of 0.015%-0.065% on loan.

2. Source: Ant Group prospectus 2020.

3. Source: Netcom Bank Annual Report 2019.

4. Source: Ping An Bank Annual Report 2019.

5. CSMAR (China Stock Market and Accounting Research) database, based on academic research needs, is provided by GTA Information Technology. CSMAR is a comprehensive research-oriented database focusing on China Finance and Economy. WIND database is provided by China’s Financial Information Services Industry. The WIND database includes complete information on Chinese stocks, bonds, funds, futures, RMB rates, and the economy. These two databases are the most popular databases for academic research purpose.

6. To be exact, the transaction costs need to be amortized over the weighted-average maturity of the debts. However, it is impossible to do so due to lack of information. In the robustness tests, we use interest payments only as debt-financing costs. The results are qualitatively similar.

7. We carried out all the regressions using the coverage and depth indices as well. All the results are indistinguishable from those using the overall index only.

8. The Internet penetration rate is available from the China Internet Network Development Statistics Report by China Internet Network Information Center.

9. We admit that the firm size differences may lead to different findings between large listed firms and small private firms. We were not able to document the possible differences due to unavailability of unlisted small firms’ financial data.

Additional information

Notes on contributors

Han Chen

Dr. Han Chen is an Assistant Professor of Acounting at Xiamen National Accounting Institute, China. Her teaching and research areas include accounting and business models.

Soon Suk Yoon

Dr. Soon Suk Yoon is a Professor of Accounting in the School of Accounting, Finance, Economics, and Decision Sciences at Western Illinois University, USA. His teaching and research interests include financing accounting and corporate financing.