Bank fintech and financial leverage–evidence from China

This paper investigates whether and how bank FinTech affects corporate financial leverage. The results show that bank FinTech significantly reduces financial leverage. Mechanism tests suggest that enhancements in information processing and improvements in bank monitoring contribute to this reduction. Specifically, information technology has enabled banks to collect and analyse data on borrowing firms, allowing them to reallocate loans from firms with limited growth prospects and high risks to those with high growth potential and low risks. The improvement of bank monitoring ability conveys monitoring pressure to firms, encouraging borrowers to adjust their financial leverage structure. These findings provide practicable implications for China, suggesting that the digital transformation of banks can enhance credit efficiency, help balance corporate financial leverage, and thereby contribute to preventing systemic risks in the corporate sector.