Finance and firm volatility: evidence from small business lending in China
The online trading platform Alibaba provides financial technology (FinTech) credit for millions of micro, small, and medium-sized enterprises (MSMEs). Using a novel data set of daily sales and an internal credit score threshold that governs the allocation of credit, we apply a fuzzy regression disco...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2023
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| Online Access: | https://hdl.handle.net/10356/164061 |
| _version_ | 1826120575784845312 |
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| author | Chen, Tao Huang, Yi Lin, Chen Sheng, Zixia |
| author2 | Nanyang Business School |
| author_facet | Nanyang Business School Chen, Tao Huang, Yi Lin, Chen Sheng, Zixia |
| author_sort | Chen, Tao |
| collection | NTU |
| description | The online trading platform Alibaba provides financial technology (FinTech) credit for millions of micro, small, and medium-sized enterprises (MSMEs). Using a novel data set of daily sales and an internal credit score threshold that governs the allocation of credit, we apply a fuzzy regression discontinuity design (RDD) to explore the causal effect of credit access on firm volatility. We find that credit access significantly reduces firm sales volatility and that the effect is stronger for firms with fewer alternative sources of financing. We further look at firm exit probability and find that firms with access to FinTech credit are less likely to go bankrupt or exit the business in the future. Additional channel tests reveal that firms with FinTech credit invest more in advertising and product/sector diversification, particularly during business downturns, which serves as effective mechanisms through which credit access reduces firm volatility. Overall, our findings contribute to a better understanding of the role of FinTech credit in MSMEs. |
| first_indexed | 2024-10-01T05:18:43Z |
| format | Journal Article |
| id | ntu-10356/164061 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T05:18:43Z |
| publishDate | 2023 |
| record_format | dspace |
| spelling | ntu-10356/1640612023-05-19T07:31:18Z Finance and firm volatility: evidence from small business lending in China Chen, Tao Huang, Yi Lin, Chen Sheng, Zixia Nanyang Business School Business::Finance Firm Volatility Microfinance The online trading platform Alibaba provides financial technology (FinTech) credit for millions of micro, small, and medium-sized enterprises (MSMEs). Using a novel data set of daily sales and an internal credit score threshold that governs the allocation of credit, we apply a fuzzy regression discontinuity design (RDD) to explore the causal effect of credit access on firm volatility. We find that credit access significantly reduces firm sales volatility and that the effect is stronger for firms with fewer alternative sources of financing. We further look at firm exit probability and find that firms with access to FinTech credit are less likely to go bankrupt or exit the business in the future. Additional channel tests reveal that firms with FinTech credit invest more in advertising and product/sector diversification, particularly during business downturns, which serves as effective mechanisms through which credit access reduces firm volatility. Overall, our findings contribute to a better understanding of the role of FinTech credit in MSMEs. Ministry of Education (MOE) T. Chen gratefully acknowledges the financial support from Singapore Ministry of Education Academic Research Fund Tier 1 [Grant RG166/18]. C. Lin acknowledges the financial support from the Research Grant Council of the Hong Kong Special Administrative Region, China [Project T35/710/20R]. 2023-01-04T01:22:37Z 2023-01-04T01:22:37Z 2022 Journal Article Chen, T., Huang, Y., Lin, C. & Sheng, Z. (2022). Finance and firm volatility: evidence from small business lending in China. Management Science, 68(3), 2226-2249. https://dx.doi.org/10.1287/mnsc.2020.3942 0025-1909 https://hdl.handle.net/10356/164061 10.1287/mnsc.2020.3942 2-s2.0-85132927992 3 68 2226 2249 en RG166/18 Management Science © 2021 INFORMS. All rights reserved. |
| spellingShingle | Business::Finance Firm Volatility Microfinance Chen, Tao Huang, Yi Lin, Chen Sheng, Zixia Finance and firm volatility: evidence from small business lending in China |
| title | Finance and firm volatility: evidence from small business lending in China |
| title_full | Finance and firm volatility: evidence from small business lending in China |
| title_fullStr | Finance and firm volatility: evidence from small business lending in China |
| title_full_unstemmed | Finance and firm volatility: evidence from small business lending in China |
| title_short | Finance and firm volatility: evidence from small business lending in China |
| title_sort | finance and firm volatility evidence from small business lending in china |
| topic | Business::Finance Firm Volatility Microfinance |
| url | https://hdl.handle.net/10356/164061 |
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