Determinants of the Use of Fintech Finance among Chinese Small and Medium-Sized Enterprises

FinTech, the merging of finance and modern Internet-based technology, has rapidly presented itself as a disruptor to traditional business financing, notably in the form of crowdfunding and Peer-to-Peer (P2P) lending. In this paper, we examine the determinants of the use of FinTech finance by businesses, with a particular focus on the ownership, governance, and business practices that may modify the relationships with conventional motivations for external finance. Using a comprehensive sample of Chinese hi-tech small and medium-sized enterprises (SMEs), we find that state-owned enterprises (SOEs) and family firms and financially constrained firms are respectively much less and much more likely to seek FinTech finance. In the Chinese context, we argue that part of this may be because of the relative ease with which SOE SMEs can access cheaper conventional finance through SOE banks. The quality of traditional relationship banking also affects the relative desirability of FinTech financing. As for family firms, we find that innovation, as exemplified by R&D activity, effectively overrides any conventional reluctance to access external finance, suggesting the relative benefits of FinTech finance for innovative high-growth firms.