Legal enforcement and fintech credit: International evidence

Previous studies have shown that the quality of legal institutions is negatively associated with the interest rates of business loans. Fintech lending, with improved ex ante risk-sharing practices that change the approach to credit provision, presents a challenge to the traditional relationship betw...

Full description

Saved in:
Bibliographic Details
Published in:Journal of empirical finance 2023-06, Vol.72, p.214-231
Main Authors: Peng, Hongfeng, Ji, Jiao, Sun, Hanwen, Xu, Haofeng
Format: Article
Language:English
Subjects:
Fintech credit
Information sharing
Legal enforcement
Risk sharing
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Previous studies have shown that the quality of legal institutions is negatively associated with the interest rates of business loans. Fintech lending, with improved ex ante risk-sharing practices that change the approach to credit provision, presents a challenge to the traditional relationship between law and finance. Compiling and studying over five million fintech loans from 24 countries, we show that, in comparison to traditional bank loans, the quality of legal enforcement matters less to the cost of fintech credit. Nonetheless, the impact of legal protection on the interest rates of fintech credit is more persistent when (1) the loans bear higher risk, (2) the fintech platforms have fewer risk-sharing tools, and (3) borrowers’ jurisdictions have fewer information-sharing channels. Our study contributes to the debate on the role of legal protection in the fintech credit market. •Fintech lending challenges the traditional relationship between law and finance.•Overall, legal enforcement matters less to the cost of fintech credit.•The quality of legal enforcement matters more to high-risk fintech loans.
ISSN:0927-5398
1879-1727
DOI:10.1016/j.jempfin.2023.03.007