Does FinTech reduce corporate excess leverage? Evidence from China

Abstract

As a financial innovation driven by digital technology, FinTech has a significant impact on the traditional financial system and the real economy. Existing studies mainly focus on the application of FinTech in the fields of banking and capital markets, less attention is paid to the firm-level evidence, especially the discussion of enterprise capital structure. In fact, when a company’s capital structure has a high proportion of debt, it is considered overleveraged, which could produce devastating impacts on the sustainable development of firms and the entire capital market. This paper explores solutions to address corporate excess leverage from the perspective of FinTech. Using Chinese listed companies from 2007 to 2020 as a sample, we find that regional FinTech significantly reduces financing constraints and improves stock liquidity, which is beneficial for the alleviation of excess leverage The results hold after a battery of robustness tests. Moreover, the heterogeneity analysis shows that this impact is more pronounced for private enterprises and companies with a relatively low degree of capital market liberalization. This study aims to provide alternative solutions to avoid excess corporate leverage in China and other emerging economies.