Does FinTech Innovation Improve Traditional Banks' Efficiency and Risk Measures? A New Methodology and New Machine-Learning-Based Evidence from Patent Filings

Speaker：Fang Libing (Associate Professor, School of Engineering Management, Nanjing University)

Host：Liu Yanchu ,Associate Professor, Lingnan College

Time and Date：10:30, Apr.21, 2023

Venue: Wang Daohan Conference Room(101), Lingnan Hall

Language:  Chinese

Abstract:

We develop a new methodology that goes all-in machine learning to identify FinTech innovation, and, in turn, to construct a bank-specific proxy of such innovation in China. Since China stringently separates commercial (traditional) and investment banking services, this allows us to study the effects of FinTech innovation on the efficiency and risks of traditional banking. After mitigating endogeneity via propensity score matching and difference-in-differences, we show that FinTech innovation significantly improves banks’ efficiency in terms of profit, cost, interest income, and noninterest income. FinTech innovation also improves banks’ risk measures—including the overall risk (Z score), capital asset ratio, liquidity ratio, and the nonperforming loan ratio. Heterogeneity analysis further shows that FinTech has a greater positive impact on efficiency and risk measures for banks with greater labor intensity and higher managerial ability.