1 s2.0 S0313592622002016 Main

Economic Analysis and Policy 77 (2023) 281–299
Contents lists available at ScienceDirect
Economic Analysis and Policy

journal homepage: www.elsevier.com/locate/eap
Analyses of topical policy issues
Does FinTech reduce corporate excess leverage? Evidence

from China
∗
Xiaobing Lai a , Shujing Yue a,b,c , , Chong Guo a , Xinhe Zhang a
a
School of Economics and Management, Southeast University, Nanjing 211189, China
b
National School of Development and Policy, Southeast University, Nanjing 211189, China
c
Institute of Socialist Development with Chinese Characteristics, Southeast University, Nanjing 211189, China
article info a b s t r a c t
Article history: As a financial innovation driven by digital technology, FinTech has a significant impact on
Received 24 July 2022 the traditional financial system and the real economy. Existing studies mainly focus on
Received in revised form 23 October 2022 the application of FinTech in the fields of banking and capital markets, less attention is
Accepted 25 November 2022
paid to the firm-level evidence, especially the discussion of enterprise capital structure.
Available online 28 November 2022
In fact, when a company’s capital structure has a high proportion of debt, it is considered
JEL classification: overleveraged, which could produce devastating impacts on the sustainable development
G30 of firms and the entire capital market. This paper explores solutions to address corporate
G32 excess leverage from the perspective of FinTech. Using Chinese listed companies from
M14 2007 to 2020 as a sample, we find that regional FinTech significantly reduces financing
M10
constraints and improves stock liquidity, which is beneficial for the alleviation of
Keywords: excess leverage The results hold after a battery of robustness tests. Moreover, the
FinTech heterogeneity analysis shows that this impact is more pronounced for private enterprises
Excess leverage and companies with a relatively low degree of capital market liberalization. This study
Financing constraints aims to provide alternative solutions to avoid excess corporate leverage in China and
Stock liquidity other emerging economies.
© 2022 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights
reserved.
1. Introduction
The Modigliani and Miller (MM) theory emphasize that, under the condition of perfect information, corporate debt
financing generates the ‘‘tax shield effect’’ that would ultimately exert a positive impact on firm value enhancement
(Modigliani and Miller, 1963). However, many firms adopt excessively leveraged financing strategies, which can produce
a series of detrimental consequences, such as reducing future returns (Johnson, 2004; Penman et al., 2007; Caskey et al.,
2012), boosting the cost of capital (Caskey et al., 2012), and increasing financial distress (DeAngelo et al., 2018). Moreover,
a vast number of firms using leverage excessively in the long term is a crucial indicator for assessing the future financial
risk of the overall corporate sector (Auer et al., 2021), which can have a devastating impact on the whole economy. How
to effectively reverse the excess leverage dilemma of enterprises has become a key issue to be addressed in the existing
financial system.
Since the 21st century, with the comprehensive application of digital technologies such as artificial intelligence,
blockchain, cloud computing, and big data in the financial field, financial technology (FinTech) is not only revolutionizing
the traditional financial industry around the world but also has a significant impact on the capital structure of enterprises,
∗ Corresponding author at: School of Economics and Management, Southeast University, Nanjing 211189, China.
E-mail address: [email protected] (S. Yue).
https://doi.org/10.1016/j.eap.2022.11.017
0313-5926/© 2022 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
X. Lai, S. Yue, C. Guo et al. Economic Analysis and Policy 77 (2023) 281–299
who are one of the primary service objects of the traditional financial industry. The earliest Fintech was proposed in the
1990s by the Financial Services Technology Alliance, founded by Citibank in the United States. In a broad sense, FinTech
involves the application of advanced technologies to support the development of the financial industry (Darolles, 2016).
The more specific definition presented by the Financial Stability Board (2016) is that FinTech is a financial innovation
triggered by digital technologies, which have a significant impact on financial markets, financial institutions, and financial
services, and can generate new business models, technology applications, and product services. These digital technologies
include artificial intelligence, blockchain, cloud computing, big data, etc. (Yang et al., 2021a).
The use of FinTech has emerged and grown at a stunning speed worldwide in recent years (Ding et al., 2022). Global
fintech investments in 2021 recorded $210 billion with 5684 deals (KPMG, 2021). FinTech innovation is profoundly
changing the operating environment and functioning rules of the traditional financial system (e.g. Chang et al., 2020; Lee
and Shin, 2018; Saksonova and Kuzmina-Merlino, 2017). By applying FinTech, traditional financial sectors can establish
enhanced customer-oriented business models, and improve service efficiency by reducing bank operating costs and
strengthening risk control systems (Yang et al., 2021a). FinTech is revolutionarily changing the way the financial sectors
operate and exerting positive value for the whole financial sector (Chen et al., 2019).
In addition to affecting financial institutions and the financial industry, the benefits of FinTech for enterprises also have
been well established by previous literature. FinTech innovation can reduce the asymmetry information and ineffective
intermediary costs, providing customized financial services for real enterprises. Meanwhile, the time for the scrutiny
and approval process of the fund granting would also be significantly reduced (Luo et al., 2022). Prior research suggests
that FinTech, such as reward-based crowdfunding and Initial Coin Offering, offers new opportunities for innovative
entrepreneurial projects to obtain funds (Block et al., 2021; Bollaert et al., 2021; Colombo and Shafi, 2016). Besides firms’
financing activities, the relationship between FinTech and other corporate activities is also documented. For example, Luo
et al. (2022) suggested that FinTech innovation effectively enhances firms’ total factor productivity. Ding et al. (2022)
documented that fintech significantly promotes firms’ innovation. Lv and Xiong (2022) argued that corporate investment
efficiency is positively correlated with FinTech development. Despite the extensive study on the impact of FinTech on
financial sectors and firms’ various activities, its influences on excess leverage remain unexplored.
FinTech could mitigate firms’ excess leverage for the following reasons. FinTech has revolutionarily transformed the
financial industry, which is the provider of debt capital and might affect firms’ gearing ratios. With the wide coverage
of financial services, reduced information asymmetry, and improved operating efficiency of financial institutions brought
by FinTech, firms’ financing bottleneck could be reduced, which might mitigate companies’ dilemma of using leverage
excessively. Another important force shaping the correlation between FinTech and excess leverage is stock liquidity.
Evidence suggests that FinTech is conducive to the digital transformation of capital markets (Langevin, 2019), which
can not only mitigate the information asymmetry (Chorzempa and Huang, 2022; Feyen et al., 2021) but also increase
firms’ stock liquidity and hence access to low-cost equity financing. For instance, investment banks, insurance companies,
broking agencies, and trading security enterprises can use FinTech tools to collect a firm’s non-traditional data (e.g., image,
audio, video, text sentiment), which can greatly reduce transaction costs arising from information asymmetry in the
process of equity financing, possibly ameliorating the concern of over-indebtedness. Although there is a possible nexus
between excess leverage and FinTech, the literature on the role of FinTech in reducing excess leverage is scant.
Using data from Chinese listed companies from 2007 to 2020, we examine the correlation between excess leverage
and FinTech. Our results suggest that FinTech and excess leverage are negatively correlated, this finding hold after a series
of robustness tests including the alternative measure of the dependent variable, elimination of special samples, lagged
independent variable, and instrumental variable. Moreover, the influencing mechanisms test shows that FinTech eases
firms’ financing constraints and improves their stock liquidity, which facilitates the reduction of corporate excess leverage.
Additionally, the restraining effect of FinTech on corporate excess leverage is more pronounced for private-owned
companies and companies with a relatively low degree of capital market liberalization.
The contributions of our study are as follows: Firstly, several studies have discussed the solutions for corporate excess
leverage, such as corporate governance (Boateng and Huang, 2017), ownership concentration (Amin and Liu, 2020),
and information asymmetry (Chen et al., 2020); however, as the global new generation of information technology, the
relationship between regional Fintech and the excessive leverage of enterprises has been largely ignored. By identifying
FinTech as an essential factor that can significantly curb corporate excess leverage, we expand the emerging research on
the influencing factors of capital structure management (e.g. Chen et al., 2020; Boateng and Huang, 2017; Modigliani and
Miller, 1963). Moreover, from a practical perspective, excess leverage could lead to corporate defaults, which indicates
firms fail to make payments to creditors (Valta, 2016). Given that corporate default could produce devastating impacts on
the stakeholders including shareholders, creditors, customers, regulators, suppliers, and employees, for instance, defaults
lead to supply chain interruptions, undermine the investment made by shareholders in the business; cause losses to
creditors, customers, and suppliers; and damage the pecuniary and non-pecuniary benefits of employees, and even impair
the smooth functioning of the entire capital market. (e.g., Brogaard et al., 2017; Xu and Zhang, 2009; Nadarajah et al.,
2021). Due to the serious consequences arising from excess leverage, our research provides important evidence on the
reduction in firms’ excess leverage.
Second, our research enriches studies on the impact of regional FinTech on micro firm-level activities. With the soaring
investment in FinTech globally, not only the influences of FinTech on financial sectors explored by scholars (Bejar et al.,
2022; Chen et al., 2019; Murinde et al., 2022; Yang et al., 2021a), but its influences on corporate activities including access
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to finance (Bollaert et al., 2021), innovation (Ding et al., 2022) and investment efficiency (Lv and Xiong, 2022; Huang,
2022) are also investigated. However, the impact of FinTech on corporate excess leverage, to the best of our knowledge,
has not been documented by prior studies. With our findings on the nexus between FinTech and excess leverage, our
research advances the understanding of the link between FinTech and micro-level firm activities.
Third, we reveal the influencing mechanisms through which FinTech mitigates firms’ excess leverage from the
perspectives of financing constraints and stock liquidity. These findings are crucial as it provides enterprises with
additional means to prudently manage their leverage level, which is not only conducive to firms’ long-term sustainable
development but also greatly valued by investors. Additionally, we discuss whether the relationship between FinTech and
excess leverage is heterogeneous depending on corporate property rights and the degree of capital market liberalization,
further facilitating the comprehensive understanding of the association between FinTech and excess leverage.
China is selected for our research for the following reasons. Compared to the stock market in developed countries,
information asymmetry in emerging markets is more severe (Nadarajah et al., 2021), thus, stocks of companies in emerging
markets have significantly wider spreads and greater volatility in contrast to those in developed markets (e.g., Lesmond,
2005). Therefore, equity issuance becomes more expensive for firms in emerging economies (Hanselaar et al., 2019), which
makes the phenomenon of companies holding excessively high leverage prevalent in China due to the over-reliance on
debt financing. Moreover, China has a relatively poor creditor protection legal system (Peng, 2001), a typical example is
that bankruptcy laws are often weakly enforced, and courts are often costly to address conflicts (Fan et al., 2011). Since
shareholding concentration is very common in China, coupled with the weak creditor protection legislation, controlling
shareholders might be able to transfer unfavorable risks to creditors by repudiating or delaying payments (Faccio et al.,
2010). Additionally, controlling shareholders tend to employ value-destroying financial policies such as excess leverage
to expropriate the interests of minority shareholders, which enables them to control more resources without diluting
their control rights over the company (Liu and Tian, 2012; Faccio et al., 2010). Therefore, China’s companies, to some
extent, face a severe situation of excess leverage. Given the potentially detrimental consequences of excess leverage and
the relative importance of China as the world’s second-largest economy, it is crucial to explore ways that facilitate highly
indebted firms to deleverage and reduce their debt burden.
The remainder of this article is exhibited as follows: Section 2 presents the literature review and hypothesis
development. Section 3 describes the data and methodology. Section 4 presents baseline results, robustness tests, possible
mechanisms, and heterogeneity analysis. Section 5 concludes the main conclusions of this research.
2. Literature review and hypothesis development
2.1. Excess leverage in China
Corporate leverage is an essential part of corporate financing activities and plays an important role in corporate
decision-making, industry development, and even the overall functioning of the economy. After the international financial
crisis in 2008, the issue of corporate leverage has attracted extensive attention in China. The corporate leverage ratio in
China accounts for more than 60% of the total leverage ratio of the real economy, while in most countries it accounts for
less than 40% (Meng and Wang, 2022). Therefore, the government and financial regulators have enacted relevant policies
to address the issue of corporate excess leverage and require them to deleverage. The Central Economic Work Conference
officially proposed the objective of ‘‘deleveraging’’ in 2015, followed by the aim of ‘‘structural deleveraging’’ in 2018, and
‘‘stabilizing leverage’’ in 2019, which has been closely linked to major economic measures with corporate leverage levels.
However, the leverage ratio of non-financial listed companies in China remains high, which rose from 48.17% in 2001 to
60.82% in 2019. Meanwhile, the leverage ratio in 2013 reached the highest point of 61.95%. Since 2014, the leverage ratio
has shown a slow downward trend, but it remained at around 60% (Lu, 2020).
2.2. Literature on excess leverage
A certain level of leverage generates benefits for the company, as limited free cash flows restrict managerial discretion
(Jensen, 1986). However, if leverage levels surpass a certain point, the cost of debt rises due to the increased bankruptcy
cost, which could exert a detrimental influence on firm value (Titman, 1984). By decomposing leverage into optimal
and excess components, Caskey et al. (2012) found that excess leverage tends to induce a negative correlation between
leverage and future returns. Durand et al. (2016) suggested that as companies exceed an optimal leverage level, using
leverage excessively would expose shareholders to high agency costs that exceed any benefits from mergers and
acquisitions.
Considering the potential negative impact of excess leverage, some scholars focused on the influencing factors of excess
leverage. Based on the data of Chinese A-share listed companies, Chen et al. (2020) explored the association between
stock liquidity and a firm’s excess leverage, their findings indicated that, by strengthening the exit threats of blockholders
and easing information asymmetry, stock liquidity significantly reduces firms’ excess leverage. From the perspective of
corporate governance, other scholars found that controlling shareholders tend to expropriate corporate resources and
the interests of minority shareholders with their controlling rights through using excessive debts (Liu and Tian, 2012;
Paligorova and Xu, 2012). Similar to their findings, Boateng and Huang (2017) studied the impact of multiple large
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shareholders and the influences of control contestability of multiple large shareholders on excess leverage, their results
documented that the contestability of multiple non-controlling large shareholders relative to controlling shareholders
lowers the firms’ tendency of using leverage excessively. In this paper, due to the substantial impact of FinTech on firms’
activities, we aim to enrich the literature on the influencing factor of excess leverage by examining whether FinTech
reduces firms’ overly high leverage.
2.3. FinTech and excess leverage
China’s underdeveloped stock market has caused many listed companies to face great market friction and high
transaction costs when issuing stocks. Transaction costs are defined as costs associated with the economic exchange
between various agents (Robins, 1987). The ongoing need to collect and process information, draft, modify and develop
negotiated contracts and arrangements, supervise and execute agreements, and manage and maintain relationships incur
transaction costs (Rindfleisch and Heide, 1997). Based on the transaction cost theory, the transaction cost is zero if all
economic parties have perfect information (Williamson, 1985). In the real capital market, economic agents possess limited
information, and thus transaction costs exist in markets (Coase, 1937). When this cost is greater than the cost of debt
financing, companies will choose to employ debt financing, leading to an excessive debt burden. However, in the field
of capital markets, with the empowerment of digital technologies such as distributed fault tolerance, the immutability
of data information, and smart contract event triggering, FinTech can strengthen the infrastructure construction of
securities registration, trading, clearing, and settlement (Chiu and Koeppl, 2019). Hence, the transaction cost of equity
financing could be significantly reduced. Moreover, financial intermediaries, such as brokers and digital platforms, which
bridge suppliers and consumers and were previously only accessible to a limited extent, also contribute to making
markets more efficient and hence reducing transaction costs (Schenk et al., 2019). In addition to financial intermediaries,
Schmidt and Wagner (2019) utilized the transaction cost theory to examine how blockchain might influence supply chain
relations, their results suggested that blockchain reduces transaction costs because it allows for more transparent and
valid transactions. When the cost of equity financing falls below the financing cost of debt, firms’ motivation to raise debt
financing would be lowered.
Additionally, from the perspective of the governance effect of financial institutions, FinTech improves the accessibility,
authenticity, and transparency of enterprise information, which could improve the lending institution’s risk identification
ability. Information asymmetry causes inadequate bank prudential regulation and supervision. FinTech reduces infor-
mation asymmetry, fostering efficient credit market development, which results in tightened lending standards, better
pricing of risk, and more strictly bank supervision. For example, the advanced technology of big data enables the financial
industry to use and integrate the internal and external data associated with credit risks. With the application of more
efficient machine learning algorithms, financial institutions can obtain a more reliable prediction of credit risk (Wen et al.,
2021), which enables them to improve their profitability while effectively reducing losses arising from improper credit
provision. The improved banks’ risk management system and tighter lending standards could lead firms to use less debt
in their capital structure. Therefore, by identifying and restricting additional lending to enterprises with high debt ratios,
financial institutions can restrain enterprises from over-indebtedness and achieve better credit allocation. Based on the
above analysis, we posit the following hypothesis:
H1: FinTech can reduce the level of corporate excess leverage. That is, there is a negative association between regional FinTech
and corporate excess leverage in the corresponding area.
FinTech may reduce firms’ excess leverage by mitigating their financing bottleneck. Before the rapid development of
FinTech, it usually takes a long period to apply, evaluate and grant loans for enterprises. Coupled with the fact that limited
accessibility and expensive cost of equity issuing, companies usually hold a high level of debt to meet various future
funding needs. One of the crucial reasons for the insufficient financing of enterprises is the disadvantage in the information
market. FinTech plays an essential role in improving financial institutions’ assessment of firms’ creditworthiness, thereby
reducing the cost of information asymmetry, which promotes the operational efficiency of the borrowing institution (Luo
et al., 2022). With the new financial technologies and big data, financial institutions have easier access to a wider source
of corporate information. Meanwhile, the technical means of financial technology can also streamline and simplify the
loan approval process, improve the efficiency of business processing, and greatly save the approval time of relevant
departments (Gomber et al., 2017; DeYoung et al., 2013). Fuster et al. (2019) suggested that, without subsequently
increasing the default risk, FinTech enhanced the speed of loan approval by 20%. Using Ant Financial’s microfinance data,
Huang et al. (2018) reached a similar conclusion, their results indicated that loan approval based on artificial intelligence
and big data lowers human intervention and rent-seeking behavior in the loan approval process, which reduced financing
costs and speeded up the approval time. Overall, the reduced amount of time in obtaining loans and improved accessibility
of funds brought by FinTech could potentially reduce enterprises’ motivation to hold the excess level of debt.
In addition to improved external financing brought by FinTech, FinTech also strengthens firms’ capacity of generating
internal funds, which is conducive to the reduction of firms’ excess leverage. Pecking order theory explains the company-
level determinants of leverage (Myers and Majluf, 1984; Ağca et al., 2013). Based on the pecking order theory, due to the
transaction costs arising from information asymmetries in the market, companies tend to finance their projects first with
internal funds. Internal financing derives from a company’s internal cash flows, which mainly come from sales growth.
FinTech development could facilitate the increase in cash flows arising from sales in the following two different ways. First,
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digital financial inclusion makes more current and potential customers access to internet borrowing who are previously
excluded by the traditional financial sectors. For example, using data from the China Household Finance Survey and the
digital inclusive finance index developed by Peking University, Li et al. (2020b) found that digital inclusive finance could
enhance households’ consumption. Their additional analysis shows that online credit, digital finance, digital payment,
purchase of financing products on the internet, and business insurance, are the primary mediating variables through which
digital finance influences household consumption. The increased consumption driven by FinTech could boost firms’ sales
revenue, making enterprises a stronger capacity to generate internal funds and hence reducing their leverage level.
Moreover, FinTech could help firms screen customers with good creditworthiness and increase the turnover rate
of accounts receivable, thereby further strengthening firms’ internal fund-generating capacity. Specifically, a battery of
technologies, such as cloud computing, blockchain, and other digital technologies, can automatically input customer
information, users’ transaction records, demand inquiries, and other information into the cloud system. The data recorded
in the cloud including payment orders, loan records, and consumption records, can be used by the company to evaluate
the credit customers’ default probability by applying FinTech means such as big data modeling and artificial intelligence
technology (Luo et al., 2022). Moreover, instant FinTech payment aids customers to make payments conveniently, lowering
the occurrence of the company’s accounts receivable. This increases firms’ internal fund-generating ability, thereby
reducing the dependence on external debt capital.
H2: FinTech development can ease corporate financing constraints, which is conducive to the alleviation of excessive leverage.
Besides the improvement of financing efficiency and the increase of internal funds brought by FinTech, FinTech could
also reduce firms’ excessive debt by increasing stock liquidity. FinTech could mine more comprehensive corporate infor-
mation and mitigate the information asymmetry (Lv and Xiong, 2022), thereby increasing the stock price informativeness
and hence stock liquidity. In a capital market with a high level of stock liquidity, it is easier for a company to issue
more shares to settle the debt or provide financial support for the firm’s operation without the stock price being largely
affected, while in a less liquid stock market, stock issuance could be expensive due to the greater price impact caused by
the increase in the supply of share (Hanselaar et al., 2019). Therefore, enhanced stock liquidity increases firms’ access to
equity capital, consequently reducing firms’ gearing levels.
Furthermore, high stock liquidity promotes the trading of informed investors and hence increases the informativeness
of stock prices (Holmstrom and Tirole, 1993). Such reduction in information asymmetry facilitates lower gearing
level, as the controlling shareholders who aim to seek personal benefits through using leverage excessively become
easier to be detected (Leuz and Oberholzer-Gee, 2006). Moreover, controlling shareholders’ motivation to use leverage
excessively can also be restrained through the strengthened blockholders’ intervention or ‘‘exit’’ threat brought by stock
liquidity. Blockholders are viewed as informed traders who impact management through ‘‘exit’’ threats, that is, selling a
company’s shares based on their private information (Edmans, 2009). Blockholder exit exerts downward pressure on firms’
share prices, which could damage shareholders’ wealth through their equity stake in the company. Hence, controlling
shareholders want to ensure their actions are such that blockholders would like to stay with the company. Even if there
is no exit observed, the governance effect from blockholders can be still effective because their threat of exit is sufficient
to restrain controlling shareholders’ behavior (Bharath et al., 2013). Higher stock liquidity is conducive to the liquidation
of the blockholders’ investment, which could reinforce their exit threats (Bharath et al., 2013; Edmans et al., 2013; Chen
et al., 2020), thereby reducing controlling shareholders’ discretion in excessive leverage.
H3: FinTech development could improve stock liquidity, which facilitates the reduction of firms’ excessively high leverage.
3. Data and methodology
3.1. Sample selection
Our sample includes Chinese listed companies from 2007 to 2020, we obtain our financial data from China Stock
Market Accounting Research (CSMAR) database, and the Chinese Research Data Services (CNRDS) database, and data on
the FinTech patent applications of each city are sourced from Incopat global patent database. Specifically, the CSMAR
database covers a wide range of financial and economic data on the stock market, listed companies, fund markets, etc.
It is one of the largest, most accurate, and most comprehensive economic and financial research databases in China, and
now serves more than 3000 educational institutions, research institutes, and financial institutions worldwide. The CNRDS
database is a research system of 55 independent databases on China’s finance and economics. Its high-quality, open, and
platform-based comprehensive data on China’s economic, financial, and business research provides scholars with a large
and specialized data resource. The data of the core explanatory variable ‘‘fintech’’ in this paper comes from the Incopat
global patent database, which includes a large amount of patent information from 120 countries and regional organizations
worldwide, and integrates various functional modules such as patent search, analysis, and data download. In addition, a
total number of 25 264 firm-year observations is gained after excluding observations with listed companies in the financial
and insurance sectors, missing values, ST (special treatment), and PT (particular transfer) firms, the micro-level variables
are winsorized at a cut-off of 1% at both tails.
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3.2. Methodology
Based on the common practice of empirical studies, this paper uses the Hausman test to select the fixed-effects model
and the random-effects model before conducting the empirical analysis. The test result shows that the value of the
Hausman statistic was 372.63, which passed the 1% significance test, indicating that the random effects model should
be rejected. Therefore, the fixed-effects model is selected for the regression analysis in the empirical part of this paper.
Following Chen et al. (2020), we examine the impact of FinTech of each city on corporate excess leverage using the model
specified in Eq. (1).
ELi,t = α0 + α1 fintechj,t −1 + α2 sizei,t + α3 roai,t + α4 FAi,t + α5 growthi,t +
(1)
α6 FDi,t + α7 indepeni,t + α8 boardi,t + α9 instii,t + ϕt + ϕi + εi,j,t
In Eq. (1), ELi,t is the dependent variable, which represents the excess leverage level of enterprise i at year t. The main
independent variable is fintech j,t −1 , which represents the level of financial technology innovation in city j at year t −1. To
exclude endogenous effects of other factors on corporate excess leverage, we add a set of control variables to Eq. (1), which
include size, roa, age, FA, growth, FD, indepen, board, and insti. α2 to α9 indicate the coefficients of the control variables.
ϕ t and ϕ i represent the year-fixed effects and the individual-fixed effects, respectively. a0 and εi,j,t represent constant
and residual, respectively. α1 is our primary interest, which represents the impact of FinTech (fintech) on the corporate
excess leverage (EL).
3.3. Variable definition and descriptive statistics
3.3.1. Corporate excess leverage

While leverage levels within each industry are somewhat correlated, leverage levels between industries are signifi-
cantly different depending on the asset structure and scope of operations. Therefore, we consider measuring the level of
corporate excess leverage from the perspective of the industry. Corporate excess leverage (EL) is calculated as a firm’s
leverage minus the industry median leverage (Liu and Tian, 2012; Chen et al., 2020). Consistent with Chen et al. (2020),
we report the main results using excess book value leverage (EL), and using excess market value leverage (EL_ market)
and firm’s leverage minus the industry mean leverage (EL_ mean) for the robustness check in Section 4.2.1.
3.3.2. FinTech
According to the Global (Financial Stability Board, 2016), FinTech is essentially technology-driven financial innovation.
Continuing this line of thought, if the degree of technological innovation in the financial sector can be measured, then
it will provide some indication of the level of FinTech development. Based on prior literature (Ding et al., 2022; Feng
and Li, 2021; Yang et al., 2021b), it is common to measure technological innovation from the perspective of patents,
which provides an important basis for the selection of fintech indicators in this paper. From the perspective of market
participants, the sources of fintech patents mainly include technology companies not engaged in financial business, fintech
companies, and traditional financial institutions. To avoid the negative impact of homogeneous product competition on
business performance, companies have a strong incentive to improve their market competitiveness by developing new
products and technologies, while patents reflect a stage of the development of new products and technologies. Therefore,
driven by the profit motive of capital, technology companies, financial technology companies, and traditional financial
institutions rely on patent applications to strengthen their technological innovation strength and market competitiveness
in their creation and the start of commercial activity. In addition, the creation and commercial activities of these companies
(institutions) are achieved through the establishment of offline physical outlets, coupled with the significant regional
differences that characterize China’s economic and financial development. These have resulted in significant differences
in the number of technology companies, fintech companies, and traditional financial institutions in different regions. As a
result, there are also regional differences in the number of fintech patent applications and the level of fintech penetration
in different regions. It is therefore necessary to measure the level of fintech development from a regional perspective.
Consistent with Chen and Chang (2020), we use the number of financial technology patent applications in a city to
measure fintech which is defined by the G06Q category under the International Patent Classification (IPC) of the World
Intellectual Property Organization (WIPO). According to WIPO’s International Patent Classification (IPC) numbers, G06Q
refers to the data processing system or method specifically designed for commercial, financial, managerial, or forecasting
purposes. There are seven categories belonging to it: administration (G06Q-010/00), payment schemes (G06Q-020/00),
commercial marketing or e-commerce (G06Q-030/00), financial insurance (G06Q-040/00), data processing of specific
services (G06Q-050/00), data processing systems (G06Q-090/00) and other technologies (G06Q-099/00). Among them,
FinTech patents mainly include G06Q20, G06Q30, and G06Q40 (Chen and Chang, 2020), covering the fields of banking,
investment, and general business methods, which are regarded as financial business method patents related to FinTech.
To reduce the issues of heteroscedasticity and the time lag effect of the patent application, we use the natural logarithm
of one plus 1-year lagged FinTech patent applications of each city to measure the level of regional FinTech.
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Fig. 1. FinTech patent applications in China.
Fig. 1 reports the trend of FinTech patent applications in China from 2007 to 2020.1 It can be seen that during the
sample period, the number of fintech patent applications in China grew from 1563 in 2007 to 29,684 in 2020, with an
average annual growth rate of 27.20%, which is in line with the reality of the rapid development of fintech in China in
recent years.
3.3.3. Control variables

Following prior empirical studies on corporate leverage (e.g. Ağca et al., 2013; Chen et al., 2020; Liu and Tian, 2012), we
control other variables that might affect EL, which includes size, roa, age, FA, growth, FD, indepen, board, and insti. Variable
definition, descriptive statistics, and correlation coefficient matrix included in Eq. (1) are reported in Tables 1 and 2. The
correlation coefficient between fintech and EL is −0.034 (P < 0.01), suggesting a significantly negative correlation between
them.
4. Empirical results
4.1. Baseline results
Table 3 reports the baseline results for the relationship between regional FinTech and corporate excess leverage.
Column (1) represents the regression results without the control firm’s characteristics, the coefficient of fintech is
significantly negative (α1 = −0.0048, p < 0.05), suggesting that the development of regional FinTech reduces corporate
excess leverage in the corresponding area. To reduce the endogenous problems caused by the omitted variables, we
controlled other factors (CVs) that might affect firms’ excess leverage. The results in Column (2) show that the coefficient
of fintech is statistically significant at the 1% level (α1 = −0.0055) after the inclusion of control variables, which verifies
corporate excess leverage is negatively associated with the level of regional FinTech.
There are two possible reasons for the above findings. First, FinTech can provide firms with more financing channels
and significantly shorten the fund approval time, which is conducive to the reduction of financing constraints, reducing
enterprises’ dependence on debt financing. Before the rapid development of FinTech, due to the deficiencies in the size,
function, and rules of the Chinese capital market, as well as the prevailing government intervention in the banking market,
firms tend to be concerned about the possible financing difficulties in the future, possibly resulting in an over-leveraged
strategy to prevent future financing bottlenecks. By attracting a substantial number of high-technology firms into the
financial sector, FinTech has greatly transformed the traditional financial system. The increasing number of financial
products and improved operating efficiency of financial sectors brought by FinTech can provide companies with more
diversified financing choices within a shorter period, which ultimately reduces companies’ motivation to hold a high
level of debt. Therefore, firms are likely to release excess leverage to reduce the risk of financial insolvency.
1 As there are nearly 300 prefectural-level cities in China, it is difficult for us to present the fintech patent data of all cities from 2007 to 2020
due to the limitation of the length of the article, so we mainly report the total number of fintech patent applications in China as a whole. The
datasets used during the current study are available from the corresponding author on reasonable request.
287
Table 1
Variable definition and descriptive statistics.
Variable Symbol Description Mean p50 sd Min Max N
Dependent EL Corporate excess leverage, 0.011 0.004 0.179 −0.632 0.708 25 264
variable calculated as a firm’s leverage
minus the industry median
leverage (Liu and Tian, 2012;
Chen et al., 2020)
Independent fintech The natural logarithm of one 3.975 4.025 2.515 0.000 8.703 25 264
variable plus the number of patent
applications in the field of
financial technology at the city
level in China
Control size The logarithm of total assets 22.177 21.992 1.280 19.789 26.095 25 264
variables
roa Return on assets, computed as 0.040 0.038 0.058 −0.253 0.200 25 264
net profit divided by total assets
age The log of the number of years 2.125 2.197 0.771 0.000 3.296 25 264
since a company is established
FA The ratio of fixed assets to total 0.213 0.180 0.160 0.003 0.709 25 264
assets
growth The growth rate of total assets 0.160 0.093 0.304 −0.304 2.380 25 264
FD The ratio of financial debt to 0.415 0.428 0.255 0.000 0.907 25 264
total debt
indepen The number of independent 0.374 0.333 0.055 0.143 0.800 25 264
directors divided by total
number of directors
board The log of the number of board 2.140 2.197 0.201 1.609 2.708 25 264
directors
insti Institutional shareholding ratio 0.441 0.464 0.246 0.003 0.917 25 264
Table 2
Correlation coefficient matrix.
Variable EL fintech size roa age FA growth FD indepen board insti
EL 1
fintech −0.034∗∗∗ 1
size 0.368∗∗∗ 0.111∗∗∗ 1
roa −0.292∗∗∗ −0.054∗∗∗ −0.022∗∗∗ 1
age 0.223∗∗∗ 0.014∗∗ 0.445∗∗∗ −0.172∗∗∗ 1
FA 0.077∗∗∗ −0.273∗∗∗ 0.095∗∗∗ −0.041∗∗∗ 0.096∗∗∗ 1
growth 0.031∗∗∗ −0.020∗∗∗ 0.024∗∗∗ 0.225 ∗∗∗
−0.220∗∗∗ −0.148∗∗∗ 1
FD 0.342∗∗∗ −0.141∗∗∗ 0.264∗∗∗ −0.244∗∗∗ 0.207∗∗∗ 0.338∗∗∗ −0.016∗∗ 1
indepen −0.007 0.101∗∗∗ 0.024∗∗∗ −0.036∗∗∗ −0.036∗∗∗ −0.064∗∗∗ −0.000 −0.014∗∗ 1
board 0.105∗∗∗ −0.128∗∗∗ 0.254∗∗∗ 0.039∗∗∗ 0.149∗∗∗ 0.161∗∗∗ −0.022∗∗∗ 0.100∗∗∗ −0.531∗∗∗ 1
insti 0.124∗∗∗ −0.079∗∗∗ 0.430∗∗∗ 0.120∗∗∗ 0.239∗∗∗ 0.176∗∗∗ −0.002 0.084∗∗∗ −0.073∗∗∗ 0.248∗∗∗ 1
Note: ∗ , ∗∗
, and ∗∗∗
denote significance at the 10%, 5%, and 1% levels, respectively.
Second, FinTech can increase stock price informativeness by mitigating information asymmetry, thereby enhancing
firms’ stock liquidity, which increases firms’ access to equity capital and thus reduce their gearing ratios. With the support
of various cutting-edge technologies, such as blockchain, cloud computing, artificial intelligence, and big data, FinTech not
only reduces the acquisition cost of information but also improves the liquidity and authenticity of corporate information.
Consequently, the transaction costs of equities caused by information asymmetry are likely to reduce, promoting more
funds to be allocated to equity trading. This could increase the frequency of stock transactions, which is conducive for
firms to obtain equity financing, thereby reducing their excess leverage (Chen et al., 2020).
4.2. Robustness tests
To ensure the reliability of the baseline regression results, we carried out robustness and endogeneity tests from the as-
pects of variable substitution, exclusion of special samples, lagged effects, instrumental variables, Driscoll–Kraaystandard
errors, the city-fixed effects, omitted variable, and the placebo test.
4.2.1. Replace variable

First, to reduce the concern of variable selection bias, the excess leverage, which is measured using excess book value
leverage in the benchmark regression, is replaced with excess market value leverage (EL_ market) (Chen et al., 2020).
Meanwhile, the industry median leverage is substituted with the industry mean leverage in the calculation of excess
leverage (EL_ mean). Columns (1) and (2) of Table 4 show that the coefficients of EL_ market and EL_ mean are both
significantly negative at the 5% level (α1 = −0.0041 and −0.0037, respectively), verifying our above findings.
288
Table 3
Baseline results.
Variables (1) (2)
EL EL
−0.0048∗∗ −0.0055∗∗∗
fintech
(0.0021) (0.0018)
0.0476∗∗∗
size
(0.0044)
−0.4929∗∗∗
roa
(0.0237)
0.0512∗∗∗
age
(0.0050)
0.0342∗
FA
(0.0201)
0.0216∗∗∗
growth
(0.0035)
0.1686∗∗∗
FD
(0.0094)
−0.0424
indepen
(0.0340)
−0.0085
board
(0.0128)
−0.0408∗∗∗
insti
(0.0144)
Year FE Yes Yes
Firm FE Yes Yes
0.0299∗∗∗ −1.1402∗∗∗
_cons
(0.0083) (0.0946)
N 25 260 25 260
adj. R2 0.681 0.751
Note: Standard errors are clustered at the firm level and are presented in parentheses; ∗ , ∗∗ , and ∗∗∗
denote significance at the 10%, 5%, and 1% levels, respectively. Control variables include size, roa, age,
FA, growth, FD, indepen, board, and insti.
4.2.2. Eliminate special samples

Second, sample selection bias may also interfere with our main findings, which are mitigated using the following two
approaches: first, we removed the samples with excess leverage of less than zero; moreover, given that the international
financial crisis that occurred during 2007–2008, and the sudden outbreak of COVID-19 in 2020 had a significant impact
on corporate financial data, therefore, data for these years are eliminated from the sample. The estimation results are
presented in Columns (3) and (4) of Table 4, respectively, the coefficients of fintech are significantly negative at the 1%
level in both cases, which is consistent with the aforementioned findings.
4.2.3. Consider time lag

Third, since patent applications have the time-lag effect, the baseline regression used the one-year lagged FinTech
(fintech), to further consider the lagging influence (Lv and Xiong, 2022), we used two-year lagged (lag2.fintech) and three-
year lagged (lag3.fintech) FinTech patent applications to replace the fintech in Eq. (1). Columns (1) and (2) of Table 5 show
the coefficients of both lag2.FinTech and lag3.fintech are statistically significant at the 5% level (α1 = −0.0044 and −0.0039,
respectively), confirming the inhibitory impact of FinTech on corporate excessive leverage.
4.2.4. Instrumental variable test

Fourth, following Lv and Xiong (2022), we use the ‘‘regional internet broadband user utilization rate’’ (Internet) as an
instrumental variable. There are two reasons for using the Internet as an instrumental variable: Firstly, a higher level of
internet development in a region implies a better information infrastructure in that region; this is an essential technology
and application scenario on which FinTech development is based. Secondly, to a certain extent, the internet does not
directly affect the level of excess leverage of companies. Column (3) of Table 5 shows a negative relationship between
fintech and EL after considering the instrumental variable (α1 = −0.1178, p < 0.05), validating our benchmark regression
results. Furthermore, the under-identification test (Kleibergen-Paap rk LM) and weak identification test (Cragg-Donald Wald
F ) significantly reject the original hypothesis, implying that it is reasonable to choose the Internet as an instrumental
variable.
289
Table 4
Robustness tests: Alternative measures of excess leverage and the exclusion of special samples.
Variables (1) (2) (3) (4)
EL_ market EL_ mean EL (if EL > 0) EL (2008 < year < 2020)
−0.0041∗∗ −0.0037∗∗ −0.0054∗∗∗ −0.0050∗∗∗
fintech
(0.0017) (0.0018) (0.0018) (0.0018)
0.0936∗∗∗ 0.0495∗∗∗ 0.0287∗∗∗ 0.0492∗∗∗
size
(0.0040) (0.0042) (0.0039) (0.0047)
−0.4964∗∗∗ −0.4965∗∗∗ −0.4821∗∗∗ −0.4785∗∗∗
roa
(0.0207) (0.0233) (0.0239) (0.0254)
−0.0326∗∗∗ 0.0543∗∗∗ 0.0331∗∗∗ 0.0532∗∗∗
age
(0.0045) (0.0049) (0.0062) (0.0055)
0.0428∗∗ 0.0348∗ −0.0290 0.0370∗
FA
(0.0175) (0.0199) (0.0215) (0.0209)
0.0090∗∗∗ 0.0226∗∗∗ 0.0235∗∗∗ 0.0203∗∗∗
growth
(0.0027) (0.0034) (0.0041) (0.0036)
0.0974∗∗∗ 0.1699∗∗∗ 0.0553∗∗∗ 0.1683∗∗∗
FD
(0.0078) (0.0092) (0.0109) (0.0100)
−0.0520∗ −0.0402 −0.0014 −0.0175
indepen
(0.0309) (0.0331) (0.0345) (0.0338)
−0.0273∗∗ −0.0071 −0.0007 0.0009
board
(0.0112) (0.0124) (0.0129) (0.0132)
−0.1242∗∗∗ −0.0403∗∗∗ −0.0524∗∗∗ −0.0472∗∗∗
insti
(0.0130) (0.0142) (0.0133) (0.0151)
Year FE Yes Yes Yes Yes
Firm FE Yes Yes Yes Yes
−1.8645∗∗∗ −1.2058∗∗∗ −0.5376∗∗∗ −1.2051∗∗∗
_cons
(0.0890) (0.0921) (0.0883) (0.1009)
N 24 803 25 260 12 774 21 568
adj. R2 0.761 0.767 0.609 0.770
Note: Standard errors are clustered at the firm level and are presented in parentheses; ∗ , ∗∗
, and ∗∗∗
denote significance
at the 10%, 5%, and 1% levels, respectively.
4.2.5. Driscoll–Kraay standard errors

Fifth, to avoid the possible problems of cross-sectional and temporal dependence in the panel data, this paper follows
Hoechle (2007) and uses ‘‘Driscoll–Kraaystandard errors’’ to overcome the potential problems. The results are shown in
Table 6. It can be seen that after replacing the original standard errors with Driscoll–Kraaystandard errors, the negative
correlation between FinTech and corporate excess leverage remains robust (the coefficient of fintech is −0.0055 and
significant at the 1% level), indicating that the baseline results of this paper are reliable.
4.2.6. Consider the city-fixed effects

Sixth, previous literature suggests that there is an association between geographic location and firm capital structure
(Gao et al., 2011). To exclude the endogenous effect of unobserved factors at the regional level on firms’ excess leverage,
this paper supplements the regression results with city-fixed effects (as shown in Table 7). The difference is that column
(1) controls for year-fixed effects, individual-fixed effects, and city-fixed effects, while column (2) controls for year-fixed
effects, city-fixed effects, and industry-fixed effects. However, the similarity is that the regression results with city fixed
effects both illustrate a significant negative correlation between regional fintech development and firm overleverage in
the corresponding region, and this negative correlation does not disappear due to the geographic location factor (α 1 is
significantly negative at the 1% level for both specifications), which is consistent with the baseline regression results of
this paper.
4.2.7. Consider the omitted variable issue and the placebo test
Finally, to eliminate as much as possible the endogenous interference of unobserved factors to the conclusions of this
paper, we add control variables from the perspectives of corporate governance, cash holdings, government subsidies, and
urban economic growth, to reduce the problem of omitted variables; on the other hand, we randomly disrupt the regional
fintech variables by disorganizing them and linking the disordered regional fintech variables to the over-indebtedness
of listed firms in the corresponding regions. The data are re-developed to construct a placebo test (pseudo-regression)
to verify whether the core findings of this paper are caused by unobserved factors. We repeat this placebo regression
procedure 1000 times, and Fig. 2 reports the kernel density plots of the coefficient distribution and t-value distribution
of fintech after 1000 repeated regressions.
290
Table 5
Robustness tests: Time lags and instrumental variable.
Variables (1) (2) (3)
EL EL EL
−0.1178∗∗
fintech
(0.0521)
−0.0044∗∗
lag2.fintech
(0.0018)
−0.0039∗∗
lag3.fintech
(0.0018)
0.0461∗∗∗ 0.0467∗∗∗ 0.0463∗∗∗
size
(0.0047) (0.0051) (0.0048)
−0.4916∗∗∗ −0.4987∗∗∗ −0.5095∗∗∗
roa
(0.0241) (0.0245) (0.0266)
0.0551∗∗∗ 0.0546∗∗∗ 0.0542∗∗∗
age
(0.0073) (0.0101) (0.0060)
0.0310 0.0332 0.0361
FA
(0.0214) (0.0235) (0.0227)
0.0226∗∗∗ 0.0227∗∗∗ 0.0207∗∗∗
growth
(0.0041) (0.0046) (0.0038)
0.1685∗∗∗ 0.1669∗∗∗ 0.1669∗∗∗
FD
(0.0102) (0.0111) (0.0107)
−0.0295 −0.0181 −0.0789∗
indepen
(0.0343) (0.0357) (0.0420)
−0.0039 0.0011 −0.0189
board
(0.0135) (0.0144) (0.0158)
−0.0451∗∗∗ −0.0562∗∗∗ −0.0475∗∗∗
insti
(0.0150) (0.0161) (0.0167)
Kleibergen-Paap rk LM 8.865∗∗∗
Cragg-Donald Wald F 80.004∗∗∗
Year FE Yes Yes Yes
Firm FE Yes Yes Yes
−1.1385∗∗∗ −1.1709∗∗∗
_cons
(0.1016) (0.1113)
N 22 506 19 427 25 260
adj. R2 0.762 0.775 −0.126
, and ∗∗∗
denote significance
Specifically, Table 8 presents the regression results considering the omitted variable issue. The results show that
after sequentially adding the control variables of corporate governance (Two and MF ), cash holdings (CH), government
subsidies (GS), and urban economic growth (gdp),2 the regression of the coefficient of fintech is significantly negative
at the 1% level, showing that the negative relationship between regional fintech development and the level of corporate
over-indebtedness does not produce significant variation after considering the variable omission issue.
In addition, the kernel density plots on the coefficient distribution and t-value distribution of fintech shown in Fig. 2
indicate that the coefficients and t-values of fintech are distributed around the value of zero, indicating that the randomly
disrupted regional FinTech variables do not represent the true FinTech variables corresponding to the city in which the
firm is located, inversely verifying that the reduction in the level of over-indebtedness of the firm is not caused by
unobserved factors, but is closely related to the development of regional FinTech.
4.3. Possible mechanisms
Here, we examine the possible influencing mechanisms through which FinTech suppresses corporate excess leverage.
Referring to the approaches employed by Li et al. (2020a), the following regression models of Eqs. (2) and (3) are employed
2 Specifically, the variables reflecting corporate governance include whether the chairman and general manager are concurrent (Two) and the
company’s overhead rate (MF ); where Two is a dummy variable defined as 1 when the company’s chairman is also the general manager and
0 otherwise; MF is defined as the company’s overhead as a percentage of operating income; and regarding the measure of cash holdings (CH),
consistent with Chen et al. (2015) and Li et al. (2020c), it is measured using cash and cash equivalents divided by the total assets. Government
subsidies (GS) are expressed using government subsidies received by the company as a percentage of operating revenues. Urban economic growth
(gdp) is defined as urban GDP adjusted for natural logarithm.
291
Table 6
Robustness tests: Replace Driscoll Kraay standard errors.
Variables (1)
EL
fintech −0.0055∗∗∗
(0.0006)
size 0.0476∗∗∗
(0.0027)
roa −0.4929∗∗∗
(0.0280)
age 0.0512∗∗∗
(0.0090)
FA 0.0342∗∗∗
(0.0099)
growth 0.0216∗∗
(0.0080)
FD 0.1686∗∗∗
(0.0057)
indepen −0.0424
(0.0251)
board −0.0085
(0.0098)
insti −0.0408∗∗∗
(0.0128)
Year FE Yes
Firm FE Yes
_cons −1.1186∗∗∗
(0.0727)
N 25 264
within R2 0.239
Note: Driscoll–Kraaystandard errors are presented in parentheses; ∗ , ∗∗

, and ∗∗∗
denote
significance at the 10%, 5%, and 1% levels, respectively.
Table 7
Robustness test: Consider the city-fixed effects.
Variables (1) (2)
EL EL
fintech −0.0060∗∗∗ −0.0054∗∗∗
(0.0018) (0.0019)
size 0.0480∗∗∗ 0.0616∗∗∗
(0.0044) (0.0024)
roa −0.4861∗∗∗ −0.8408∗∗∗
(0.0238) (0.0309)
age 0.0510∗∗∗ 0.0200∗∗∗
(0.0051) (0.0034)
FA 0.0356∗ 0.0028
(0.0202) (0.0179)
growth 0.0218∗∗∗ 0.0355∗∗∗
(0.0035) (0.0045)
FD 0.1704∗∗∗ 0.1832∗∗∗
(0.0095) (0.0091)
indepen −0.0420 −0.0894∗∗
(0.0340) (0.0396)
board −0.0087 −0.0032
(0.0129) (0.0129)
insti −0.0420∗∗∗ 0.0135
(0.0146) (0.0094)
Year FE Yes Yes
Firm FE Yes No
City FE Yes Yes
Industry FE No Yes
_cons −1.1475∗∗∗ −1.3901∗∗∗
(0.0959) (0.0530)
N 25 259 25 262
adj. R2 0.750 0.443
, and ∗∗∗
292
Table 8
Robustness test: Consider the omitted variable issue.
Variables (1) (2) (3) (4) (5)
EL EL EL EL EL
fintech −0.0057∗∗∗ −0.0058∗∗∗ −0.0065∗∗∗ −0.0065∗∗∗ −0.0075∗∗∗
(0.0018) (0.0018) (0.0018) (0.0018) (0.0018)
size 0.0479∗∗∗ 0.0459∗∗∗ 0.0439∗∗∗ 0.0440∗∗∗ 0.0438∗∗∗
(0.0044) (0.0044) (0.0043) (0.0043) (0.0043)
roa −0.4956∗∗∗ −0.5188∗∗∗ −0.4873∗∗∗ −0.4856∗∗∗ −0.4867∗∗∗
(0.0242) (0.0239) (0.0233) (0.0234) (0.0232)
age 0.0500∗∗∗ 0.0491∗∗∗ 0.0324∗∗∗ 0.0321∗∗∗ 0.0314∗∗∗
(0.0051) (0.0051) (0.0051) (0.0051) (0.0051)
FA 0.0329 0.0329 −0.0072 −0.0068 −0.0061
(0.0201) (0.0201) (0.0204) (0.0203) (0.0205)
growth 0.0214∗∗∗ 0.0216∗∗∗ 0.0228∗∗∗ 0.0226∗∗∗ 0.0224∗∗∗
(0.0035) (0.0035) (0.0034) (0.0034) (0.0034)
FD 0.1686∗∗∗ 0.1698∗∗∗ 0.1561∗∗∗ 0.1569∗∗∗ 0.1581∗∗∗
(0.0095) (0.0094) (0.0094) (0.0094) (0.0094)
indepen −0.0347 −0.0335 −0.0351 −0.0359 −0.0391
(0.0347) (0.0347) (0.0344) (0.0344) (0.0347)
board −0.0069 −0.0061 −0.0077 −0.0079 −0.0080
(0.0129) (0.0129) (0.0127) (0.0127) (0.0128)
insti −0.0410∗∗∗ −0.0400∗∗∗ −0.0301∗∗ −0.0297∗∗ −0.0290∗∗
(0.0144) (0.0143) (0.0141) (0.0140) (0.0141)
Two 0.0046 0.0049 0.0046 0.0046 0.0040
(0.0033) (0.0033) (0.0033) (0.0033) (0.0033)
MF −0.1073∗∗∗ −0.0942∗∗∗ −0.0836∗∗∗ −0.0847∗∗∗
(0.0318) (0.0315) (0.0313) (0.0314)
CH −0.1694∗∗∗ −0.1689∗∗∗ −0.1676∗∗∗
(0.0135) (0.0135) (0.0135)
GS −0.0745∗∗ −0.0798∗∗
(0.0363) (0.0365)
gdp 0.0103
(0.0081)
_cons −1.1564∗∗∗ −1.1040∗∗∗ −0.9818∗∗∗ −0.9829∗∗∗ −1.0617∗∗∗
(0.0952) (0.0948) (0.0940) (0.0938) (0.1166)
N 24 931 24 930 24 930 24 930 24 747
adj. R2 0.752 0.752 0.757 0.757 0.758
, and ∗∗∗
denote significance
Fig. 2. The placebo test.
to testify the mechanisms of financing constraints (FC ) and stock liquidity (SL) mentioned above:
FCi,t = β0 + β1 fintechj,t −1 + β2 sizei,t + β3 roai,t + β4 FAi,t + β5 growthi,t +

(2)
β6 FDi,t + β7 indepeni,t + β8 boardi,t + β9 instii,t + ϕt + ϕi + εi,j,t
SLi,t = λ0 + λ1 fintechj,t −1 + λ2 sizei,t + λ3 roai,t + λ4 FAi,t + λ5 growthi,t +
(3)
λ6 FDi,t + λ7 indepeni,t + λ8 boardi,t + λ9 instii,t + ϕt + ϕi + εi,j,t
293
Table 9
Economic mechanisms: Financing constraints and stock liquidity.
Variables (1) (2)
FC SL
−0.0025∗∗ 0.0006∗∗
fintech
(0.0012) (0.0003)
−0.0040 0.0018∗∗∗
size
(0.0053) (0.0005)
0.0038 0.0295∗∗∗
roa
(0.0117) (0.0028)
0.0825∗∗∗ −0.0013∗
age
(0.0043) (0.0007)
−0.0759∗∗∗ −0.0079∗∗∗
FA
(0.0137) (0.0022)
0.0244∗∗∗ 0.0011∗∗∗
growth
(0.0022) (0.0004)
0.0359∗∗∗ −0.0030∗∗∗
FD
(0.0078) (0.0010)
−0.0043 0.0063
indepen
(0.0269) (0.0049)
0.0151 0.0019
board
(0.0104) (0.0016)
−0.0134 0.0065∗∗∗
insti
(0.0113) (0.0017)
Year FE Yes Yes
Firm FE Yes Yes
3.4103∗∗∗ 0.9273∗∗∗
_cons
(0.1263) (0.0111)
N 25 260 25 247
adj. R2 0.968 0.511
, and ∗∗∗
where λ1 and β1 represent the regression coefficients of FinTech on the two economic mechanism variables, respectively.
sizei,t , roai,t , agei,t , FAi,t , growthi,t , FDi,t , indepeni,t , boardi,t , instii,t , ϕt , ϕi , εi,j,t , β0 , and λ0 are consistent with the variables
used in the benchmark regression model. Regarding the definition of stock liquidity (SL), refer to Lesmond et al. (1999),
which use ‘‘the number of days with non-zero yields during the year divided by the number of trading days per year’’
to represent the company’s stock liquidity. The larger the SL, the higher level of the stock liquidity. For the definition
of financial constraints (FC ), based on Hadlock and Pierce (2010), the following equation is used to measure financial
constraints:
FC = abs ⏐−0.737 × Asset + 0.043 × Asset 2 − 0.04 × Age⏐
⏐ ⏐
(4)
In Eq. (4), Asset is the logarithm of the total assets of the enterprise, Age is the number of years since the firm has been
established. The larger the FC, the greater the enterprises’ financial constraints.
Table 9 reports the empirical results on economic mechanisms, Column (1) reports the impact of FinTech on financing
constraints (FC ), and the coefficient of fintech is significantly negative (β1 = −0.0025, p < 0.05), indicating that regional
FinTech eases firms’ financing bottlenecks, which is conducive for the reduction in excess leverage, which is consistent
with the Hypothesis 2. This is because FinTech could provide firms with a wider range of financial services and approve the
loan more quickly due to the reduced information asymmetry, reducing firms’ tendency to hold a high level of debt to meet
future fund demands. Moreover, FinTech can improve the company’s sales revenue and the quality of accounts receivable
by improving the company’s customer screening ability and payment capacity, which can improve the company’s internal
capital generation ability, reducing the company’s financing constraints and the dependence on debt capital.
Column (2) of Table 9 shows the regression coefficient of fintech is 0.0006 (p < 0.05), suggesting that regional FinTech
increases enterprises’ stock liquidity, which facilitates the reduction in excess leverage, verifying Hypothesis 3. FinTech
reduces information asymmetry and transaction cost in the capital market, increasing stock price informativeness and
hence stock liquidity. This is conducive for firms to obtain equity funds, thereby reducing the excessive leverage level.
4.4. Heterogeneity analysis
4.4.1. Property right

The motivation for firms to use leverage excessively may vary depending on their property rights. State-owned
enterprises usually have easier access to external financing due to implicit government guarantees and preferential
294
Table 10
Heterogeneity analysis: Property right.
Variables (1) (2)
SOE POE
−0.0028 −0.0063∗∗∗
fintech
(0.0028) (0.0024)
0.0517∗∗∗ 0.0468∗∗∗
size
(0.0082) (0.0053)
−0.6004∗∗∗ −0.4111∗∗∗
roa
(0.0492) (0.0293)
0.0341∗∗∗ 0.0551∗∗∗
age
(0.0109) (0.0068)
−0.0114 0.0886∗∗∗
FA
(0.0323) (0.0244)
0.0296∗∗∗ 0.0164∗∗∗
growth
(0.0080) (0.0038)
0.1436∗∗∗ 0.1829∗∗∗
FD
(0.0180) (0.0112)
−0.0808 −0.0166
indepen
(0.0506) (0.0473)
−0.0070 −0.0046
board
(0.0220) (0.0155)
−0.1024∗∗∗ −0.0319∗
insti
(0.0277) (0.0180)
Year FE Yes Yes
Firm FE Yes Yes
−1.1442∗∗∗ −1.1530∗∗∗
_cons
(0.1779) (0.1176)
N 9361 12 972
adj. R2 0.769 0.749
, and ∗∗∗
treatment in resource allocation, and therefore are less concerned about the financial risks associated with excess leverage.
Compared to state-owned enterprises, private enterprises have a relatively limited amount and scope of financing due to
factors such as ownership discrimination and lack of government endorsement. Therefore, private companies probably
are forced to adopt excess leverage to maintain business activities, even when enterprises already have high financial
risks. Fortunately, by using digital technologies such as big data, artificial intelligence, and cloud computing, FinTech can
innovate financial products, and business models to provide private firms with funds from multiple financing channels
within a relatively short period. This effectively addresses the issue of insufficient financing sources for private enterprises
and may eventually reduce private firms’ high leverage ratios. It is, therefore, reasonable to conclude that fintech is more
conducive to reducing POEs’ excess leverage.
We classify our sample into state-owned and private enterprises to verify the above conjecture, the results are shown
in Table 10, which suggests that, while regional FinTech significantly reduces the private enterprises’ excess leverage
(Column (1) of Table 10), it does not have a significant impact on the state-owned enterprises’ excess leverage (Column
(2) of Table 10), confirming our above conjecture.
4.4.2. Capital market liberalization

The above findings suggest that the accessibility of finance may result in State-owned enterprises and POEs choosing
different capital structures. Apart from corporate property rights, whether a firm has the access to international financial
market also directly affects the firm’s access to finance. Shanghai-Hong Kong Stock Connect (SH-HKSC) is a cross-border
capital market that connects the Shanghai Stock Exchange and the Hong Kong Stock Exchange, if a firm has the SH-HKSC
sign, it means that it has more channels to raise equity finance, therefore, the inhibitory effect of FinTech on excessive
leverage may be lower. However, companies that do not have access to the SH-HKSC, tend to have limited sources of
equity financing, they may therefore increasingly rely on debt financing for funding, possibly resulting in excess leverage.
For these companies, the impact of FinTech on reducing excess leverage may be more significant.
To verify this idea, we classified the sample according to whether the company has the SH-HKSC sign. The empirical
results are presented in Table 11, which shows that, while the coefficient on fintech in Column (1) is insignificant, Column
(2) reveals that it is negative at the 1% significance level (α1 = −0.0062), indicating that regional FinTech has a significant
negative influence on firms do not have the SS-HKSC sign, which is consistent with our above analysis.
295
Table 11
Heterogeneity analysis: Capital market liberalization.
Variables (1) (2)
SH-HKSC Non-SH-HKSC
−0.0022 −0.0062∗∗∗
fintech
(0.0023) (0.0022)
0.0519∗∗∗ 0.0577∗∗∗
size
(0.0089) (0.0064)
−0.4676∗∗∗ −0.4619∗∗∗
roa
(0.0263) (0.0331)
0.0011 0.0553∗∗∗
age
(0.0098) (0.0067)
0.0503 0.0478∗∗
FA
(0.0349) (0.0210)
0.0134∗∗ 0.0210∗∗∗
growth
(0.0057) (0.0044)
0.1521∗∗∗ 0.1605∗∗∗
FD
(0.0128) (0.0113)
−0.0719∗ 0.0128
indepen
(0.0404) (0.0380)
−0.0271 −0.0020
board
(0.0170) (0.0150)
−0.0461 −0.0750∗∗∗
insti
(0.0302) (0.0165)
Year FE Yes Yes
Firm FE Yes Yes
−1.1045∗∗∗ −1.3729∗∗∗
_cons
(0.1978) (0.1338)
N 8972 16 123
adj. R2 0.861 0.775
, and ∗∗∗
5. Conclusion and policy recommendations
One of the crucial parts of corporate finance is the leverage level. The phenomenon of excess leverage is prevalent
in China due to the less-developed capital market and relatively weak creditor legislation system. This paper examines
the impact of FinTech on corporate excess leverage. Using a fixed-effects panel model, we find that regional FinTech is
negatively associated with the excess leverage of Chinese listed companies. Further analysis shows that regional FinTech
eases firms’ financing constraints and improves stock liquidity, which is conducive to the alleviation of excess leverage.
Furthermore, the additional analysis shows that the impact of regional FinTech on reducing excess debt ratio is more
pronounced among POEs and firms that do not have the access to SH-HKSC.
Our research enriches the literature on FinTech and corporate capital structure and has important practical implications
for reducing the financial risk caused by excess leverage. First, the research conclusions of this paper confirm the role of
FinTech in reducing the level of excessive debt of enterprises, providing implications to regulators and policymakers to
promote FinTech development with more confidence. With the FinTech innovations such as big data, artificial intelligence,
and cloud computing, FinTech effectively mitigates the information asymmetry between financial institutions and firms,
enhancing their information-collecting, processing, and evaluating ability, which helps them screen borrowers and hence
reduce the funds lend to firms with high leverage level. Therefore, the government should advance the development of
FinTech, which also contributes to achieving the optimal allocation of credit resources.
Second, FinTech should be promoted to construct a multi-tiered and widely-covered data system about firms’ financial
and non-financial information to help lenders develop differentiated and customized financial products. This would lower
the financial service threshold, and promote the majority of enterprises to obtain financial services at a lower cost and
more conveniently and efficiently, facilitating the reduction in firms’ motivation to raise a high level of debt to prevent
the occurrence of some unforeseeable events in the future. Additionally, the multi-faced information and higher level of
accessibility and authenticity of the information is also conducive to the reduction in transaction cost, increasing stock
liquidity, which could reduce excess leverage through obtaining equity funding and corporate governance effect.
Third, from the enterprise level, the implementation of the ‘‘deleveraging’’ policy not only requires the guiding role
of macro factors such as national policies and banking regulations but also requires the enterprise to actively build a
digital platform, to more effectively utilize the various advantages brought by FinTech. In addition, enterprises also need
to pay attention to the impact of corporate governance and principal–agent conflicts, and other micro-factors affecting
296
the governance of excessive debt, and strengthen the prevention and control of default risks caused by excessive debt.
Hence, while carrying out macro policy orientation, the government should also focus on improving the level of corporate
governance, continuously strengthen firms’ internal governance supervision and promote the realization of the goal of
‘‘deleveraging’’.
Funding
This study was supported by the National Social Science Foundation of China [grant number 21BJL056].
CRediT authorship contribution statement
Xiaobing Lai: Conceptualization, Methodology, Data curation, Writing – review & editing. Shujing Yue: Conceptualiza-
tion, Formal analysis, Writing – review & editing. Chong Guo: Conceptualization, Methodology, Writing – original draft.
Xinhe Zhang: Conceptualization, Formal analysis, Writing – review & editing.
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have
appeared to influence the work reported in this paper.
Data availability
The datasets used during the current study are available from the corresponding author on reasonable request.
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Economic Analysis and Policy 77 (2023) 281–299

Contents lists available at ScienceDirect

Economic Analysis and Policy

Analyses of topical policy issues

Does FinTech reduce corporate excess leverage? Evidence

2. Literature review and hypothesis development

2.1. Excess leverage in China

2.2. Literature on excess leverage

2.3. FinTech and excess leverage

3. Data and methodology

3.1. Sample selection

3.3. Variable definition and descriptive statistics

3.3.1. Corporate excess leverage

Fig. 1. FinTech patent applications in China.

3.3.3. Control variables

4.1. Baseline results

4.2. Robustness tests

4.2.1. Replace variable

4.2.2. Eliminate special samples

4.2.3. Consider time lag

4.2.4. Instrumental variable test

4.2.5. Driscoll–Kraay standard errors

4.2.6. Consider the city-fixed effects

4.3. Possible mechanisms

Note: Driscoll–Kraaystandard errors are presented in parentheses; ∗ , ∗∗

denote significance at the 10%, 5%, and 1% levels, respectively.

Fig. 2. The placebo test.

FCi,t = β0 + β1 fintechj,t −1 + β2 sizei,t + β3 roai,t + β4 FAi,t + β5 growthi,t +

denote significance at the 10%, 5%, and 1% levels, respectively.

4.4. Heterogeneity analysis

4.4.1. Property right

denote significance at the 10%, 5%, and 1% levels, respectively.

4.4.2. Capital market liberalization

denote significance at the 10%, 5%, and 1% levels, respectively.

5. Conclusion and policy recommendations

CRediT authorship contribution statement

Declaration of competing interest

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