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Legal enforcement and fintech credit: International evidence

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  • Peng, Hongfeng
  • Ji, Jiao
  • Sun, Hanwen
  • Xu, Haofeng

Abstract

Previous studies have shown that the quality of legal institutions is negatively associated with the interest rates of business loans. Fintech lending, with improved ex ante risk-sharing practices that change the approach to credit provision, presents a challenge to the traditional relationship between law and finance. Compiling and studying over five million fintech loans from 24 countries, we show that, in comparison to traditional bank loans, the quality of legal enforcement matters less to the cost of fintech credit. Nonetheless, the impact of legal protection on the interest rates of fintech credit is more persistent when (1) the loans bear higher risk, (2) the fintech platforms have fewer risk-sharing tools, and (3) borrowers’ jurisdictions have fewer information-sharing channels. Our study contributes to the debate on the role of legal protection in the fintech credit market.

Suggested Citation

  • Peng, Hongfeng & Ji, Jiao & Sun, Hanwen & Xu, Haofeng, 2023. "Legal enforcement and fintech credit: International evidence," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 214-231.
    • Handle: RePEc:eee:empfin:v:72:y:2023:i:c:p:214-231
    DOI: 10.1016/j.jempfin.2023.03.007
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    More about this item

    Keywords

    Legal enforcement; Fintech credit; Risk sharing; Information sharing;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other

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