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How Does Fintech Development Affect Financing Constraints of Smes? Evidence From China

Author

Listed:
  • Yang Jian

    (University of Edinburgh, Business School, UK)

  • Zhang Yawen

    (Hangzhou Xingyu Enterprise Management Consulting Co., Ltd., China)

  • Gong Jinguo

    (Hangzhou Xingyu Enterprise Management Consulting Co., Ltd., China)

  • Liu Tong

    (Technical University of Munich, Germany)

Abstract

Small and medium-sized enterprises (SMEs) play an indispensable role in China’s economy through making huge contributions to GDP, national employment, financial innovation and government taxation. However, SMEs in China have long faced financing constraints due to their inherent problems, such as financial information asymmetry, immature governance mechanisms, and lack of collateral under the traditional financial system, which have hindered their long-term development. In recent years, financial technology (Fintech) has entered a rapid development track, especially in China, providing new ideas and methods for solving the financing difficulties of SMEs from a technical perspective. In order to examine this, this paper measures the degree of financing constraints through the cash flow sensitivity of cash model and explores how the Fintech development affects financing constraints of SMEs in China and how this impact further communicated to the performance and the risks of SMEs by adopting two-way fixed effects models. The results show that Fintech could alleviate the financing constraints of SMEs. Furthermore, the mediating role of ownership is identified, presenting a better mitigating effect of Fintech on the financing constraints for private SMEs. In addition, both the performance and the risks of SMEs showed the upward single-sided U-shaped relationship with the increase of the Fintech development index, which indicates that Fintech could amplify performance while magnifying the risks of SMEs. The findings of this paper offer an important implication for China that regulatory authorities should consider and balance the financing constraint mitigation effect and risk amplification effect of Fintech.

Suggested Citation

  • Yang Jian & Zhang Yawen & Gong Jinguo & Liu Tong, 2024. "How Does Fintech Development Affect Financing Constraints of Smes? Evidence From China," Economics, Sciendo, vol. 12(3), pages 1-32.
    • Handle: RePEc:vrs:econom:v:12:y:2024:i:3:p:1-32:n:1006
    DOI: 10.2478/eoik-2024-0031
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    References listed on IDEAS

    as
    1. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    2. Lv, Panpan & Xiong, Hu, 2022. "Can FinTech improve corporate investment efficiency? Evidence from China," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Nada Mallah Boustani, 2020. "Traditional Banks and Fintech: Survival, Future and Threats," Lecture Notes in Information Systems and Organization, in: Youcef Baghdadi & Antoine Harfouche & Marta Musso (ed.), ICT for an Inclusive World, pages 345-359, Springer.
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    More about this item

    Keywords

    Fintech; financing constraints; two-way FE model; cash flow sensitivity of cash model;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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