FinTech development is associated with lower corporate default risk: evidence from China

On the micro-level, the information about the correlation between the development of FinTech and corporate default risk is scarce, particularly in terms of its contingent and context-dependent character. The paper will investigate how FinTech development is related to corporate default risk and how the association can be different by firm characteristics and geographical settings using a longitudinal panel dataset that aligns Chinese A-share non-financial listed firms with prefecture-city-level indicators of FinTech development through a 20,122,024 timeframe. The key results can be summarized as follows: (A) FinTech development is linked to corporate default risk, but the extent and statistical significance of the relationship depend on specifications and identification strategies, indicating a weak and context-dependent relationship. (B) FinTech relates to default risk conditionally on firm-level attributes. Specifically, moderation analysis demonstrates that operational efficiency (in terms of asset turnover) is a conditioning factor, and the more efficient a firm is, the better it will be placed to take advantage of the FinTech-related advances in the financial access and information environment. In comparison, financing constraints and cash-flow adequacy do not show statistically significant moderating effects with the existing specifications. (C) Heterogeneity tests reveal that the relationship is stronger in eastern China and smaller firms, and has a different direction of stronger relationship in low-financial-depth regions and non-state-owned firms. On the whole, the findings present empirical data that FinTech has a disproportionate effect on corporate default risk, which depends on firm attributes and regional factors.