Financial innovation regulations and firm performance: Evidence from Chinese listed firms

This study investigates the impacts of financial innovation regulations on Chinese listed firms in the period of 2008 to 2020, which comes to the theoretical contribution of this paper. These regulations introduced in 2016 mainly focus on the peer-to-peer (P2P) lending platforms in this country and tend to be negatively associated with firm performance, especially for those firms investing in the P2P lending platforms, as a large amount of P2P lending platforms with unfavourable performance disappear in recent years, which may end up negatively affecting those firms investing in them. Survived P2P lending platforms tend to be stronger, then become a type of substitute of traditional banks and are able to carve up the market share of bank. The latter therefore has to increase credit supply to maximise profits, which leads to the access to more credits and therefore worse firm performance, especially for those firms with financial constraints in terms of the cash-cash flow sensitivity. The empirical results are robust to the potential endogeneity issue of financial constraints. Larger firms and state-owned enterprises (SOEs) tend to have better performance, implying that authorities may take actions for smaller firms (non-SOEs) to offset the negative impacts of financial innovation regulations they suffer and achieve better implementation of financial innovation regulations, which comes to the practical contribution of this paper.