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Does the development of FinTech increase the risk of private lending ? Evidence from China

Author

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  • Guo, Huixiao
  • Wang, Ruohan
  • Wang, Xinya

Abstract

The absence of formal regulation poses private lending a significant risk source for China's financial system. By analyzing over four million court dispute documents from 2011 to 2020 across 288 prefecture-level cities, we construct a private lending risk index to investigate the correlation between FinTech development and private lending risk. Our findings indicate that the development of FinTech leads to a significant increase of the private lending risk, with digitization level exerting the most significant promoting effect on lending risk. The micro-level analysis reveals that FinTech development attracts customers of higher quality through competitive effects, thereby lowering the threshold for participation in private lending groups and consequently amplifying lending risks. These findings remain robust to a series of tests, including various specifications and instrumental variable approaches. Moreover, the positive relationship between FinTech and private lending risks is more pronounced in contexts characterized by weaker financial supervision, limited supply of formal finance, and lower economic development.

Suggested Citation

  • Guo, Huixiao & Wang, Ruohan & Wang, Xinya, 2024. "Does the development of FinTech increase the risk of private lending ? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 96(PC).
    • Handle: RePEc:eee:reveco:v:96:y:2024:i:pc:s1059056024007135
    DOI: 10.1016/j.iref.2024.103721
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    More about this item

    Keywords

    Private lending; FinTech; Risk; Financial regulation;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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