How FinTech improves financial reporting quality? Evidence from earnings management

Abstract

This study investigates financial technology’s (FinTech) power in shaping financial market informativeness regarding corporate financial reporting quality. Since FinTech development assists financial sectors’ credit screening and monitoring, it may further shape firms’ cost-benefit considerations of information disclosure. Using manually collected data on FinTech patents, we characterize regional FinTech development and examine its effect on real earning management, representing corporate financial disclosure’s reliability for external investors. We find that regional FinTech development curbs firms’ real earnings management. Mechanism analyses suggest that FinTech development enhances information production and external monitoring, elevating the costs of misreporting; it also improves credit accessibility, reducing the external financing motives for earnings management. Alternative explanations of substitution for accrual-based earnings management and economic fundamentals are excluded. Our findings can serve as possible guidelines in facilitating the information environment via FinTech applications, as financial development increasingly relies on close integration with technological advances.