Uncovering the Mystery of China's Success in FinTech : A Perspective From Political Connections

ABSTRACT This study aims to uncover the mystery underlying the rapid development of FinTech in China. Exploiting the announcement of the FinTech‐related national policy in 2015 as a plausibly exogenous shock, we find that politically connected banks engage in FinTech adoption in a more active manner than their non‐connected counterparts after 2015, manifested as more mentions of FinTech‐related activities in their annual reports and more applications for FinTech‐related patents. By contrast, we do not observe a corresponding increase in banks' applications for non‐FinTech‐related patents. A “horserace” regression analysis is conducted to rule out the possibility that our findings are driven by policy events coinciding with the FinTech‐related national policy. We further investigate the economic consequences of FinTech adoption, which helps us pin down the mechanisms underlying the active FinTech adoption of politically connected banks. The results indicate that FinTech adoption lowers the likelihood of a bank receiving administrative punishments and reduces banks' expenses on employees. However, these effects are observed in politically connected banks only. Overall, the results support the “political and rent‐seeking incentive” and “informational and economic incentive.”