A protective shield for banks: How fintech curbs earnings manipulation through information transparency and financing constraints

Wenyi Li, Tang Li, Wenhao Shi, Yuqing Long and Wenyu Liu

International Review of Financial Analysis, 2025, vol. 107, issue C

Abstract: Fintech is an important tool to detect firm earnings manipulation and reduce financial risks. Based on the panel dataset of listed firms in China from 2012 to 2022, this study empirically examines the impact of bank fintech innovation on firms' earnings management. This study initially finds that firm borrowers' earnings management is significantly lower when their bank lenders adopt more fintech innovation. After fully eliminating issues of measurement errors, omitted variable bias, and reverse causality, the magnitude and significance of baseline regression results do not change much, which establish the casual link between bank lenders' fintech innovation and earnings management of firm borrowers. Mechanism analyses indicate that fintech innovation can effectively mitigate the information asymmetry between bank lenders and firm borrowers, thereby increasing information transparency to inhibit firms' earnings management. Otherwise, fintech innovation can efficiently enhance credit accessibility, which helps to alleviate financing constraints and reduce firms' earnings manipulation. Compared to other firms, the impacts of fintech innovation on firms' earnings management are more pronounced for non-state-owned enterprises (non-SOEs), firms with multiple major creditors, and regions with more rapid fintech development. In order to mitigate financial risks, policymakers should provide more incentives for commercial banks to accelerate fintech innovation.

Keywords: Fintech; Earnings management; Information transparency; Financing constraint; Heterogeneity (search for similar items in EconPapers)
JEL-codes: G14 G21 G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:107:y:2025:i:c:s1057521925007094

DOI: 10.1016/j.irfa.2025.104622

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