Journal of Innovation & Knowledge 7 (2022) 100219

Journal of Innovation
& Knowledge
ht t p s: // w w w . j our na ls .e l se vi e r .c om /j ou r na l -o f - in no va t i on -a n d- kn owl e dg e

Does the bank’s FinTech innovation reduce its risk-taking? Evidence from
China’s banking industry
Chengming Lia, Si Hea, Yuan Tianb, Shiqi Sunc, Lu Ningd,*
a
School of Economics, Minzu University of China, Beijing, 100081, China
b
Center for Enterprise Growth and National Economic Security Research, Tsinghua University, Beijing, 100084, China
c
School of Software & Microelectronics, Peking University, Beijing, 100871, China
d
Guangdong Institute for International Strategies, Guangdong University of Foreign Studies,Guangzhou, 510420, China

A R T I C L E I N F O A B S T R A C T

Article History: In the context of developing FinTech innovation, a commercial bank’s use of FinTech innovation can improve
Received 22 April 2022 its risk management capability, thereby reducing its risk-taking. This paper explores the impact and mecha-
Accepted 28 June 2022 nism of a bank’s FinTech innovation on its risk-taking using panel data of 65 commercial banks between
Available online 8 July 2022
2008 and 2020. We innovatively construct a bank-level index based on web crawler technology and obtain
the annual numbers of news items about a bank’s FinTech innovation from each bank in Baidu News. The
Keywords:
empirical results show that improvement in the bank’s FinTech innovation significantly reduces its risk-tak-
FinTech innovation
ing. To overcome endogenous problems, including measurement errors and omitted variables, we use the
Risk-taking
Commercial banks
instrumental variables (IV) and difference-in-differences (DID) methods to test the hypothesis and obtain
Operating income consistent estimated results. The mechanism analysis shows that banks rely on FinTech innovation to reduce
Capital adequacy ratio their risk-taking by improving their operating income and capital adequacy ratio, optimizing their operating
China’s banking industry performance, and improving their risk control capabilities. Further, a heterogeneity analysis shows that the
effect of a bank’s FinTech innovation in reducing its risk-taking is more pronounced in larger, state-owned,
JEL Classifications: joint-stock, and highly-competitive commercial banks. Our research results still hold after a series of robust-
G21 ness tests, including changing the construction methods of the bank’s FinTech innovation index, replacing
N25
the bank’s risk-taking indicators, tail-shrinking treatment, and changing samples. Our findings provide micro
O14
evidence for the application of FinTech innovation in commercial banks to reduce their risk-taking.
O33
P34 © 2022 The Authors. Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge. This
is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/)

Introduction The increasing impacts of emerging FinTech companies have

resulted in banks facing tremendous operating pressures, with effects
FinTech innovation is impacting commercial banks and has been on their risk-taking levels. Several studies have explored the impact
changing their business practices. In order to better adapt to trends of FinTech innovation on a bank’s risk from the perspective of non-
in FinTech innovation development, the commercial banking indus- bank FinTech innovation. Online loans illustrate the impacts of Fin-
try is accelerating digital transformation and improving the level of a Tech innovation on the traditional banking industry, as the rise of
bank’s FinTech innovation. However, there remains a lack of micro online loans can directly affect a bank’s loan business with the emer-
evidence as to whether a bank’s FinTech innovation currently gence of competition with traditional banks (Buchak et al., 2018;
impacts commercial banks’ risk-taking level. Existing studies find Boot et al., 2021), and the end result is to squeeze the profitability of
that various factors can affect the level of a bank’s risk-taking, includ- traditional banks. Simultaneously, the development of FinTech inno-
ing bank size (Khan et al., 2017), ownership structure (Berger and vation has also increased the share of shadow banking in the United
Bouwman, 2013), bank concentration (Efthyvoulou and Yil- States (Buchak et al., 2018), raising the cost of bank debt as well as
dirim, 2014), the degree of competition in the banking market (Wag- asset risk (Qiu et al., 2018). In the context of the external squeeze
ner, 2010), capital adequacy ratio (Chen et al., 2019a), GDP growth from FinTech and internal risk, meanwhile, and following the impact
rate (Lozano-Vivas et al., 2001, 2002), and inflation (Pasiouras, 2008). of the COVID-19 epidemic, banks are accelerating their pace of Fin-
Tech innovation, using FinTech innovation to build data platforms
and gradually create a comprehensive risk-control system in order to
* Corresponding author. better adapt to market changes and hedge against the impact from
E-mail address: [email protected] (L. Ning).

https://doi.org/10.1016/j.jik.2022.100219
2444-569X/© 2022 The Authors. Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/)
C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

external FinTech companies so as to achieve rapid development. the development of banks (Anagnostopoulos, 2018; Drasch et al.,
Thus, we focus on micro-level evidence and study the impact of 2018). Furthermore, most of the researchers conduct only qualitative
banks applying FinTech innovation on their risk-taking. analysis. Of course, other studies have explored the impact of FinTech
The findings of existing studies show that commercial banks can innovation on a bank’s risk-taking using empirical analysis from the
enjoy the benefits of the technology spillover effect by using FinTech perspective of macro FinTech innovation (Ernst and Young, 2019;
innovation, such as optimizing operating performance and improving Guo et al., 2020; Lee et al., 2021; Zhao et al., 2022). Moreover, a few
risk control capabilities. In terms of operating performance, commer- articles, based on a bank’s FinTech innovation level, have created a
cial banks can be empowered by FinTech innovation to augment ser- bank’s FinTech innovation index using the relevant vocabulary and
vice options, meet the diverse needs of customers, and boost their have used empirical analysis to determine the impact of a bank’s Fin-
growth space (Gomber et al., 2017), thus improving profitability. In Tech innovation on its performance (Cheng and Qu, 2020). However,
terms of risk control, FinTech innovation can use advanced technolo- articles based on a bank’s FinTech innovation using empirical analysis
gies, including biometrics and voice recognition, to reduce labor, cap- to verify the relationship between a bank’s FinTech innovation and its
ital, and time costs in order to improve data accuracy, which in turn risk-taking are relatively scarce. For this reason, our research has
can reduce the internal risk of fraud as well as systemic risk enriched the existing body of literature, offering new ideas and per-
(Fuster et al., 2019). In addition, FinTech innovation can also combine spectives related to this research direction.
with banks’ loan services to reduce information asymmetry between Second, based on the Baidu big data search engine, we innova-
banks and borrowers, thereby making banks more secure and flexible tively construct a metric to measure the development of FinTech
(Gomber et al., 2017) while reducing the probability of borrowers’ innovation at the bank level, compensating for the shortcomings of
defaulting. Thus, FinTech innovation may reduce commercial banks’ the existing literature on the application level of a bank’s FinTech
risk-taking. However, existing studies do not provide a clear answer innovation. At present, the FinTech innovation index is established
to the question of the impacts of a bank’s FinTech innovation on its from the broad perspective of demand or supply sides in most
risk-taking. Most relevant studies are carried out from the perspec- articles. For example, Ernst and Young (2019) have used the propor-
tive of macro FinTech innovation (Ernst and Young, 2019; Guo et al., tion of FinTech users in the financial market to construct the FinTech
2020; Lee et al., 2021; Zhao et al., 2022) or merely demonstrate the innovation index from the demand side; Guo et al. (2020) have used
impact of a bank’s FinTech innovation on a single indicator, such as the PKU-DFII to measure the degree of FinTech innovation develop-
liquidity and asset quality (Cheng and Qu, 2020). ment; International Monetary Fund (IMF) (2017), Klynveld Peat Mar-
Therefore, panel data of 65 commercial banks from 2008 to 2020 wick Goerdeler (KPMG) (2017), and other research institutions
are used to examine the impact of a bank’s FinTech innovation on its believe that FinTech companies’ scale and venture capital can be
risk-taking through empirical analysis, and the following findings are used as indicators to measure FinTech innovation development, and
obtained. First, the ordinary least squares (OLS) estimation method is the diversification of financial services provided by FinTech compa-
used in the research, and the corresponding finding is that a bank’s nies can also reflect the development of the industry (EBA, 2017).
FinTech innovation can reduce its risk-taking. For every 1% increase Zhao et al. (2022) applied Principal Component Analysis (PCA) from
in the development of a bank’s FinTech innovation, its risk-taking the supply side, based on the data of Chinese FinTech start-ups as
level can be decreased by 9.4% accordingly. Second, due to some well as the total registered capital and financing rounds from 2003 to
endogeneity problems, such as autocorrelation, in the OLS estimation 2018, to construct an annual FinTech innovation index, while
method, the Peking University Digital Financial Inclusion Index (PKU- Lee et al. (2021) used a similar approach to construct a FinTech inno-
DFII) is used in our study as an instrumental variable (Guo et al., vation index from the perspective of technology providers. In addi-
2020) for the second estimation, and consistent results are obtained. tion, other scholars have constructed a FinTech innovation index at
Moreover, another value for regression is used in the paper. That is, the bank level. Cheng and Qu (2020), using the word frequency statis-
the value with a lagged one period of bank FinTech innovation is an tics method in the text mining method, have constructed FinTech
alternative to the current value, and the results remain consistent. innovation indexes for each sub-region of banks. From the perspec-
Another finding is that after promulgating a report titled “Guiding tive of the degree of regional FinTech innovation development,
Opinion on Promoting the Healthy Development of Internet Finance” although the above methods can measure the overall level of FinTech
in 2015, the bank’s FinTech innovation has increasingly flourished. innovation, they cannot precisely describe the development of a
Therefore, we use the difference-in-differences (DID) method to fur- bank’s FinTech innovation. Cheng and Qu (2020) have constructed a
ther verify the relationship between a bank’s FinTech innovation and bank’s FinTech innovation index at the bank level based on the five
its risk-taking, and the results remain unchanged. Third, through dimensions of artificial intelligence, blockchain, cloud computing, big
mechanism analysis, one finds that a bank’s FinTech innovation data, and internet technology. Their research comprises a mere 20
reduces its risk-taking by improving operating income and capital terms1, which are limited to essential keywords related to a bank’s
adequacy ratio. Fourth, according to our heterogeneity analysis find- FinTech innovation, such as digital currency, online banking, etc. This
ings, the effect of a bank’s FinTech innovation in reducing its risk-tak- limitation may cause a deviation in a bank’s measurement and make
ing is more pronounced among larger, state-owned, joint-stock, and it difficult to accurately measure a bank’s overall FinTech innovation
highly-competitive commercial banks. Fifth, the research results are development level.
still valid following a series of robustness tests, including changing In the above articles, the word frequency statistics method is used
the construction method of a bank’s FinTech innovation index, to measure the developing level of a bank’s FinTech innovation using
replacing a bank’s risk-taking indicators, tail-shrinking treatment, the number of search results of a bank’s FinTech innovation keywords
and changing samples. in Baidu News to assess the effect of a bank’s FinTech innovation on
The three contributions of the paper to the existing literature are its risk-taking. Here are three innovations of our research. The first
as follows. First, the study of FinTech innovation effects has been innovation is to enrich the bank’s FinTech innovation lexicon. The
enriched by examining the impact of a bank’s FinTech innovation on
its risk-taking through empirical analysis from the bank’s perspec-
1
tive. Most of the existing studies focus on the composition and char- Artificial intelligence includes intelligence, face recognition, real-time detection,
acteristics of FinTech (Chen, 2016; Gomber et al., 2017), the impact of fingerprint recognition; Blockchain-related includes blockchain, alliance chain, test
chain, interconnection chain; Cloud technology includes loud computing, cloud archi-
FinTech start-ups (Giaretta et al., 2021), and the impact of FinTech tecture, cloud services, cloud finance; Data technology includes big data, data layer,
development on the economy (Chen et al., 2019c; Zhu, 2019; data set, data flow; and Internet technology includes mobile, interconnection, network,
Chiu and Koeppl, 2019), or describe the pros and cons of FinTech on online.

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C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

bank’s FinTech innovation keywords adopted in this paper have income is used as a substitute variable of bank operating performance
almost covered the standard terms displayed in the existing litera- in the paper. Third, we have synthesized the existing literature
ture. After data cleaning, some of the keywords that contained any (Filip et al., 2017; Liberti, 2018; Banna et al., 2021; Sheng, 2021) to
negative words, for example, “no” or “none,” have been deleted, and investigate the heterogeneous impact of bank size, ownership struc-
35 terms are identified after combining similar terms2. Newly-added ture, and competitiveness on a bank’s FinTech innovation and its
terms have enriched the lexicon of Cheng and Qu’s research (2020) risk-taking.
and provided references for subsequent research. The second innova- The paper is structured as follows: the background of the study is
tion is the change in crawler technology. A script crawler framework provided in Section 2; in Section 3, the impact of the bank’s FinTech
is used in the paper to add “in-title” when sending Uniform Resource innovation on its risk-taking from a theoretical perspective is ana-
Locator (URL) requests to the Baidu website to achieve accurate lyzed; Section 4 presents the data, variables, and analytical model;
matching at the title level and reduce interferences from irrelevant Section 5 shows the main findings, including mechanism, heteroge-
information. The third innovation is the improvement in the bank’s neity, and robustness analysis; and Section 6 is the conclusion.
FinTech innovation dimensions. According to the structural discrep-
ancy, the bank-level FinTech innovation index3 has been constructed Overview of FinTech development in Chinese commercial banks
in the paper from two dimensions: technology foundation and tech-
nology application. The newly-constructed index is able to extend The development history of FinTech in Chinese commercial banks
the research content of this paper and provide additional research
ideas for similar topics. At present, commercial banks are in an information technology
Third, we have innovated in influencing the factors affecting online construction period, and the development of FinTech has gone
banks’ risk-taking, significantly expanding the impact of FinTech through roughly three stages. The first stage is the FinTech 1.0 era,
innovation on commercial banks’ risk-taking. The existing literature when finance improved the electronic and automated level of office
mainly emphasizes bank size (Khan et al., 2017), ownership structure and business through the application of traditional Information Tech-
(Berger and Bouwman, 2013), bank concentration (Efthyvoulou and nology (IT), thus improving business efficiency. The change at this
Yildirim, 2014), degree of bank market competition (Wagner, 2010), stage is that commercial banks began to adopt Automated teller
and capital adequacy ratio (Chen et al., 2019a) as research variables machines (ATMs) to replace counters and tellers and credit cards to
to study the impact of these variables on banks’ risk-taking. Based on partially replace the role of cash. The second stage is the FinTech 2.0
the limitations of the present research, there are three innovations in era, as seen in the Internet finance stage. Banks expanded customer
terms of influencing factors of a bank’s risk-taking in our study. First, channels through online business platforms on the Internet or mobile
a mediating effect method is adopted in the paper to analyze the terminals, enabling the interconnection of any combination of the
transmission channels through which a bank’s FinTech innovation asset side, transaction side, and capital side of the business, which is
affects its risk-taking. Although Lee et al. (2021), Zhao et al. (2022), essentially a change in the traditional financial channels and the inte-
and other scholars have discussed the impact of FinTech innovation gration of business. The changes in this stage are reflected in the
on commercial banks’ risk-taking, they do not discuss the specific emergence of third-party payments, including Alipay and Yu’e Bao,
impact mechanism. We have thus made up for the deficiencies of which began to squeeze banks’ profits and directly compete with
previous research in the paper. Second, we innovatively propose to banks. Currently, we are facing the FinTech 3.0 era. Banks are enhanc-
use operating income and capital adequacy ratio as mediating varia- ing the efficiency of traditional finance and bringing new financial
bles to enrich the paper’s mechanism analysis. Since operating services capabilities via IT technologies, such as artificial intelligence,
income can be a measurement of bank operating status, operating big data, cloud computing, and blockchain. At this stage, commercial
banks are beginning to optimize their own business by using cloud
2
computing, big data, and other technologies, fully deploying digital
The common terms related to the development of a bank’s FinTech innovation can
transformation (Chen et al., 2022), and building middle office and
be divided into two dimensions: technology application and technology foundation.
Technology applications includes digital currency, online banking, smart investment digital systems.
advisor, online payment, e-banking, smart risk control, cross-border payment, smart
banking, regulatory sandbox, mobile payment, mobile banking, regulatory technology, The development status of banks’ FinTech innovation
third-party payment, smart customer service, compliance technology, mobile wallet,
smart finance, and digital signature. The technology foundation includes online lend-
ing, big data, crowdfunding, cloud computing, online finance, artificial intelligence,
The relevant data are counted in Table 1, and the trend in com-
credit scoring, blockchain, online financing, biometrics, online investment, Internet of mercial banks’ FinTech innovation development is portrayed in Fig. 1.
Things, virtual reality, quantum computing, 5G, distributed architecture, and financial As shown in Fig. 1(1), the overall development of commercial banks’
cloud. FinTech innovation Index (FTII) shows an increasing trend. However,
3
Data has become the most important economic “new energy” in the new era, but
there was an inflection point in 2013; that is, from 2013 to around
the development of FinTech innovation in banks to promote digital transformation is
not simply the digitization of data; they must use cutting-edge digital technology and 2015, the level of commercial banks’ FinTech innovation declined.
hardware systems to promote the digitization of their data and production processes One possible reason for this phenomenon is a large number of collap-
to achieve the goal of reducing costs, increasing efficiency, and improving quality. ses of online Peer-to-Peer lending platforms occurring during this
When banks develop FinTech innovation, they must rely on “digital science-technol- period. The regulators were increasingly stricter in their supervision
ogy driven” to transform and improve the digitalization of the original technology sys-
tem and production system, and this change depends on the layout and development
of FinTech innovation, which reduced the development level of
of key core technologies. Among them, A (artificial intelligence), B (blockchain), C banks’ FinTech innovation.
(cloud computing), and D (big data) have comprised the core underlying technology Fig. 1(2) shows the overall trend in FinTech innovation in different
architecture of banks’ FinTech innovation, and this level of FinTech innovation focuses types of commercial banks going upward. However, there are signifi-
more on the embedding of digital technologies to improve the technical support of
cant differences in the level of FinTech innovation development
banks’ internal production economy and management model. Secondly, the purpose of
developing FinTech innovation in banks is to apply and integrate FinTech innovation between State-owned and Joint-stock commercial banks and other
into their business development and risk management; thus FinTech innovation at banks. From the overall trend in banks’ FinTech innovation, there is
this level focuses more on the integration and innovation of digital science and tech- little difference in the development level of FinTech innovation
nology, and complex business ecological scenarios, from the first level of technological among State-owned and Joint-stock commercial banks, which are at
innovation to the front-end market scenario application. Therefore, according to the
structural differences, the development of a bank’s FinTech innovation can be divided
the forefront of all kinds of commercial banks developing FinTech
into two levels, “technology foundation” and “technology application,” to begin this innovation followed by city commercial banks. Rural commercial
research. banks began to focus on FinTech innovation only around 2015 due to
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Table 1
FinTech innovation index statistics of technology foundation and application of different types of commercial banks.

Year State-owned FTII State-owned TF-FTII State-owned TA-FTII Joint-stock FTII Joint-stock TF-FTII Joint-stock TA-FTII

2008 0.0026 0.0014 0.0068 0.0059 0.0010 0.0235

2009 0.0099 0.0054 0.0255 0.0094 0.0025 0.0337
2010 0.0089 0.0040 0.0264 0.0072 0.0014 0.0276
2011 0.0128 0.0091 0.0255 0.0098 0.0018 0.0383
2012 0.0091 0.0047 0.0247 0.0151 0.0048 0.0515
2013 0.0426 0.0264 0.0986 0.0273 0.0056 0.1041
2014 0.0108 0.0026 0.0400 0.0275 0.0121 0.0816
2015 0.0162 0.0068 0.0493 0.0244 0.0128 0.0648
2016 0.0203 0.0096 0.0578 0.0294 0.0149 0.0801
2017 0.0331 0.0171 0.0893 0.0474 0.0295 0.1092
2018 0.0657 0.0458 0.1335 0.0706 0.0453 0.1577
2019 0.0765 0.0512 0.1633 0.0641 0.0508 0.1082
2020 0.1186 0.0680 0.2942 0.0994 0.0638 0.2219
Year City City City Rural Rural Rural
FTII TF-FTII TA-FTII FTII TF-FTII TA-FTII
2008 0.0018 0.0013 0.0035 0.0000 0.0000 0.0000
2009 0.0020 0.0015 0.0037 0.0000 0.0000 0.0000
2010 0.0026 0.0013 0.0072 0.0001 0.0000 0.0003
2011 0.0019 0.0011 0.0046 0.0000 0.0000 0.0000
2012 0.0033 0.0020 0.0079 0.0002 0.0001 0.0003
2013 0.0107 0.0055 0.0287 0.0002 0.0000 0.0008
2014 0.0046 0.0025 0.0118 0.0001 0.0000 0.0003
2015 0.0069 0.0050 0.0134 0.0002 0.0000 0.0010
2016 0.0101 0.0081 0.0165 0.0093 0.0089 0.0102
2017 0.0190 0.0133 0.0382 0.0150 0.0141 0.0173
2018 0.0261 0.0191 0.0500 0.0083 0.0072 0.0117
2019 0.0350 0.0273 0.0605 0.0206 0.0189 0.0255
2020 0.0630 0.0487 0.1107 0.0346 0.0317 0.0425

Fig. 1. Development trends of FinTech innovation in commercial banks61.

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their significant differences in resources and capabilities from other thus reducing a bank’s risk of fraud as well as systemic risk
kinds of banks; hence their FinTech innovation development level is (Fuster et al., 2019).
the lowest among all kinds of commercial banks. Fig. 1(3) and (4) In conclusion, banks’ credit systems developed based on big data
show that the development trend of different types of commercial and other technologies can reduce transaction risk (Dynan et al.,
banks in terms of FinTech innovation’s technology application (TA- 2006) and weaken commercial banks’ risk-taking incentives. More-
FTII) and technology foundation (TF-FTII) index is also generally over, the system can also improve banks’ pre-loan, mid-loan, and
upward. Moreover, the development of State-owned and Joint-stock post-loan review capabilities, thus reducing their risk-taking levels
commercial banks is still in the leading position. (Sutherland, 2018). As a result, Hypothesis 1 is proposed for the
paper, namely, that a bank’s FinTech innovation can improve its risk
control capabilities and thus reduce its risk-taking levels.

Theories and hypotheses FinTech innovation reduces banks’ willingness to take risks by improving
operational performance
Generally speaking, FinTech innovation affects the development
of banks from two aspects: external FinTech innovation and a bank’s From a business operation perspective, commercial banks can
FinTech innovation. External FinTech innovation refers to FinTech take advantage of using big data, artificial intelligence, and other
other than banks, including FinTech companies, which can influence kinds of technologies. On the one hand, banks can process small and
the development of commercial banks through competitive effects medium-sized enterprises and individual transactions, solve the orig-
and technology spillovers (Cheng and Qu, 2020). The impact on the inal problem of the high cost of acquiring long-tail customer informa-
banking industry is examined in most of the existing studies from the tion and improve customer experience and convenience by meeting
perspective of FinTech innovation external to banks, whereas we diversified customer needs (Stulz, 2019), thus improving their profit-
have examined the impact of a bank’s FinTech innovation on its risk- ability. On the other hand, commercial banks can enhance the devel-
taking from a micro-level perspective. opment space (Gomber et al., 2017) by absorbing advanced
technology concepts to improve their traditional operational effi-
FinTech innovation enhances banks’ risk control capabilities by ciency and offer more services.
improving capital adequacy ratios Specifically, in terms of cost reduction, many studies have
shown that the application of emerging technologies can reduce
From a risk control perspective, commercial banks can obtain transaction costs and fundamentally change financial services. On
technology spillovers by using emerging technologies (Cheng and the one hand, in the traditional credit model, commercial banks
Qu, 2020), improve risk control capabilities and management effi- must expend much time and effort on the pre-loan assessment,
ciency (Newman et al., 2015), and improve internal governance and and the cost of post-loan risk and bad debt disposal due to infor-
controls, thus increasing the diversification of banks to reduce their mation asymmetry is also very high. However, nowadays, com-
credit risk (Demirguۍ-Kunt and Huizinga, 2010).
mercial banks can use big data and cloud computing technologies
Specifically, during the pre-loan period, for individual borrowers, to quickly query customer information, dramatically dropping the
banks can use “big data” to find potential borrowers, predict their cost of the entire process of credit review by banks. FinTech inno-
behaviors (Pe rez-Martíet et al., 2018), and reduce credit risk
vation can also help banks reduce the information asymmetry
(Sheng, 2021). For corporate borrowers, FinTech innovation can help problem arising from distance barriers, improve information shar-
banks improve the availability and accuracy of the information, ing within the financial sector (Law et al., 2018), and reduce
increase the number of channels and sources of information, and transaction costs (Liberti, 2018; Grennan and Michaely, 2021). On
reduce information frictions between banks and SMEs the other hand, in the past, if traditional commercial banks
nchez, 2018). In the mid-loan process of credit review, on the one
(Sa wanted to provide more financial services to their customers,
hand, banks build long-term stable relationships by increasing they had to open additional branches and increase the cost of
investments to improve digital inclusion, shorten the physical dis- leasing, personnel, and equipment. However, with the empower-
tance to customers, and help uninformed customers collect quality ing effect of FinTech innovation, commercial banks can provide
information that helps establish an accurate customer risk profile services to customers 24 hours a day regardless of time and space
(Hauswald and Marquez, 2006). On the other hand, based on auto- constraints, which dramatically reduces branch layout and opera-
mated credit scoring and credit decision systems, banks can prevent tion costs (Chiu and Koeppl, 2019). In terms of improving perfor-
risks by scoring key indicators and matching them with their risk mance, FinTech innovation helps banks to further expand their
appetite to arrive at a credit limit following a comprehensive evalua- business (Campanella et al., 2017) and improve their perfor-
tion. In the post-loan management process, on the one hand, FinTech mance. The Financial Stability Board (FSB) points out that FinTech
innovation can promote information sharing among lenders, restrain is low-cost and high-efficiency, which not only promotes the
the behavior of borrowers, and improve the ability of lenders to han- availability of financial resources, improves the symmetry of
dle risk information (Livshits et al., 2016), thus reducing the risks transaction information, and enhances disintermediation in
associated with loans (Sutherland, 2018). On the other hand, big data resource allocation (FSB, 2016) but also enhances the efficiency of
can help banks identify fund usage irregularities or other potential the financial sector and broadens the business boundaries of tra-
default risks in a timely manner, and relevant machine learning is ditional finance. Compared with banks’ traditional business
used to dispose of risks and arrive at specific solutions for different model, FinTech innovation can provide financial services to differ-
risk categories. Moreover, in terms of internal control, a bank’s Fin- ent consumers more conveniently and efficiently to meet their
Tech innovation, such as advanced technologies, including biomet- diversified needs (Lee et al., 2021). In addition, banks can use dig-
rics, voice recognition, and intelligent robots, can be used to reduce ital financial technologies to gain “digital” benefits in terms of
human, financial, and time costs and improve the accuracy of data, deposit and loan diversification, thus reducing intermediary costs
and integrating technology more efficiently (Heredia et al., 2022),
6
In the figure, State-owned, Joint-stock, City, and Rural represent state-owned com- and increasing stable deposits (Danisman and Tarazi, 2020). Fin-
mercial banks, joint-stock commercial banks, city commercial banks, rural and village
commercial banks, respectively; FTII is the banks’ FinTech innovation index. In general,
Tech innovation also complements traditional industries, as banks
TF-FTII is the technology foundation index of FinTech innovation, and TA-FTII is the have the advantage of accumulating a large amount of customer
technology application index of FinTech innovation. information and transaction data (Dorfleitner et al., 2017), and
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these data advantages can help banks achieve better business and the People’s Bank of China. The sample data are processed to
performance (Begenau et al., 2018). make them more representative using the following steps. First, we
In conclusion, FinTech innovation based on cloud computing can eliminate the samples with main variable data for less than five con-
not only improve the efficiency of banks’ internal management, make secutive years; second, we fill in a small amount of missing data by
information communication among departments more efficient, and linear interpolation and average interpolation. Following the above
help banks expand their organizational model (IMF, 2017), achieve processing, the final sample is determined as the annual balanced
technological progress, and increase productivity (Berger, 2003), but panel data of 65 commercial banks from 2008 to 2020, including 6
also make up for a bank’s shortcomings in profitability and risk man- state-owned commercial banks, 10 joint-stock commercial banks, 29
agement, increase business performance, and reduce a bank’s will- city commercial banks, 17 rural commercial banks, and 3 village
ingness to engage in risky business, thus reducing risk-taking. banks4.
Hypothesis 2 is therefore proposed: a bank’s FinTech innovation can
improve its business performance and thus reduce risk-taking levels.

FinTech innovation has heterogeneous impacts on different types of

banks Variables

In addition, we find heterogeneous effects of banks’ FinTech Currently, the measurement index of commercial banks’ risk-tak-
innovation on their risk-taking. First, Khan et al. (2017) found ing can be considered from two aspects. First, based on corporate
that bank size and capital buffers usually limit banks from taking governance theory, the perspective of bank insolvency is considered.
more risk by examining the relationship between financing The indicators considered in the existing literature are Z-value
liquidity and bank risk-taking. Large banks are usually risk-averse (Danisman and Tarazi, 2020; Zhao et al., 2022), non-performing loan
because they do not suffer from liquidity shortages and can use ratio (Papadopoulos, 2019; Cheng and Qu, 2020), and asset return
large amounts of capital for FinTech innovation and reduce variance. Second, based on the Basel Accord, the perspective of regu-
financing costs (Bertay et al., 2013), whereas small banks may latory authority is considered. The indicators used in existing studies
have a stronger urge to take risks (Banna et al., 2021). Second, to measure risk-taking are asset-to-capital ratio (Zhao et al., 2022),
scholars in general suggest that banks behave differently under deposit-to-loan ratio (Zhao et al., 2022), risk-weighted asset ratio
different ownership structures (Huang et al., 2017). For example, (Qiu et al., 2018), and risky asset ratio (Laeven and Levine, 2009).
State-Owned Commercial Banks (SOCBs) differ relatively from However, from the perspective of corporate governance, such indica-
other banks in that they have a specific social responsibility, the tors measure a bank’s ex-post risk and cannot fully reflect the bank’s
obligation to finance the government, and state-owned enter- own risk-taking. From a Basel perspective, as there are too many
prises (Lee and Huang, 2016, 2017, 2019), which can influence missing values in the risk-weighted asset ratio, we refer to
their risk-taking behavior. Further, Boyd and De Nicolo (2005) Zhao et al. (2022), select the asset-capital ratio to measure the risk of
suggest that banks may enhance their risk-taking behavior in less commercial banks, and use the Z-score5 and the deposit-lending ratio
competitive markets (FSB, 2017; Anagnostopoulos, 2018). How- (DRISK) for robustness testing.
ever, the effect of market competition on banks is reversed by In this paper, we refer to the methods used to construct the Fin-
adjusting their loan portfolios (Wagner, 2010). Martinez- Tech innovation index adopted by IMF (2017), KPMG (2017),
Miera and Repullo (2010) argue that there is a U-shaped relation- EBA (2017), Ernst and Young (2019), Guo et al. (2020), Cheng and
ship between competition and risk but that the relationship exists Qu (2020), Lee et al. (2021), and Zhao et al. (2022). To construct the
only in the loan market (Jime nez et al., 2013). Specifically, large FinTech innovation index, we obtain the number of news items
banks, which are more experienced in transacting loans than related to the FinTech innovation of each bank through Baidu News
small banks, can use FinTech innovation to improve their lending Advanced Search, for example, “Commercial Bank of China + mobile
technology (Sheng, 2021), eliminate biases in human data collec- payment,” and after summation and normalization of the number of
tion or real-time decision making, simplify information transfer, the bank’s FinTech innovation words, we obtain the bank’s FinTech
and reduce costs, thus facilitating continuous improvement in innovation index (FTII). The larger the FTII, the higher the degree of
lending transactions (Cenni et al., 2015), whereas smaller banks commercial banks’ FinTech innovation. In addition, according to the
have been slower to embrace and adopt FinTech innovation structured difference, we further divide the bank’s FinTech innova-
(Filip et al., 2017). tion index into technology foundation (TF-FTII) and technology appli-
Therefore, differences in the characteristics of various banks in the cation (TA-FTII) to improve the content of this study.
development of FinTech innovation can lead to the formation of het- Following Alqahtani et al. (2016) and Lee and Lee (2019), the fol-
erogeneity in the risk-taking of FinTech innovation for banks with lowing control variables are selected for this paper: SIZE, OVER, INV,
different asset sizes, bank types, and competitiveness. Thus, we pro- ROA, INF, and SGDP. The calculation of the above variables can be
pose Hypothesis 3, namely, the development of a bank’s FinTech found in Table 2.
innovation has a heterogeneous impact on the level of risk-taking of
4
commercial banks with differences in size, bank type, and competi- The 65 commercial banks used in this paper are all listed banks, among which 26
are listed in A-shares, such as Ping An Bank, Huaxia Bank, and Bank of Ningbo. Bohai
tiveness. Bank, Guizhou Bank, and another 17 banks are listed in Hong Kong Stocks. There are
15 companies listed in both A-shares and Hong Kong shares, including Bank of China
Data and methods and Industrial and Commercial Bank of China. Kunshan Lucheng Village Bank, Meizhou
Hakka Village Bank, and another 7 banks are listed in New Third Board. In addition, the
above 65 commercial banks are divided into four categories: state-owned, joint-stock,
Data
city, rural and village commercial banks. Among them are six state-owned commercial
banks, including Bank of China and Industrial and Commercial Bank of China. Joint-
The data of commercial banks’ reports used in this paper are stock commercial banks include Ping An Bank, Huaxia Bank, and another 10 banks.
obtained from the CSMAR and WIND database. The bank FinTech There are 29 city commercial banks, such as Bank of Ningbo and Bank of Zhengzhou.
innovation index is an indicator measuring the number of FinTech There are 20 rural and village commercial banks, including Jiangsu Jiangyin Rural Com-
mercial Bank and Jiangsu Zhangjiagang Rural Commercial Bank, among others.
innovation news-related keywords in Baidu news obtained by the 5
In order to keep the sign of the regression results consistent with the baseline
authors through the web crawler, and the macroeconomic data are results, the paper treats the Z value as negative, i.e., the smaller the Z value, then the
collated from the official websites of the National Bureau of Statistics smaller the bank’s risk-taking.

6
C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

Table 2
Definition of main variables6.

Variable Name Variable Definition

Explained variables Asset-to-Capital Ratio (RISK) Total assets/owner’s equity

Z-score (Z-score) (Return on Assets + Capital Assets Ratio) / Standard Deviation of Return on
Assets, then take the negative number.
Deposit-to-Loan Ratio (DRISK) 100* (Total Deposits/Total Loans)
Explanatory variables FinTech innovation index (FTII) Based on the lexicon of terms related to FinTech innovation, the frequen-
cies of all terms are summed up and normalized.
Technology foundation index of FinTech innovation (TF-FTII) Based on the lexicon of terms related to FinTech innovation, the frequen-
cies of terms related to technology foundation are summed up and
normalized.
Technology application index of FinTech innovation (TA-FTII) Based on the lexicon of terms related to FinTech innovation, the frequen-
cies of terms related to technology applications are summed up and
normalized.
Mediating variables Operating income (INC) Ln (operating income+1)
Capital Adequacy Ratio (CAR) Total Capital / Total Assets at Risk
Control variables (bank-level) Asset Size (SIZE) Ln (Total assets + 1)
Management capability (OVER) Administrative expenses / operating income
Income Diversity (INV) 1-abs ((Net interest income − non-operating income) / operating income)
Profitability (ROA) (Net profit/Total Assets) *100
Control variables (macro-level) Inflation (INF) Consumer price index previous year/100
Social Financing Scale (SGDP) Social financing scale/GDP

Table 3
Descriptive statistics.

Variables Obs Mean S.D. Min Max

Panel A: Bank Risk-Taking

Asset-to-Capital Ratio (RISK)
845 15.197 4.262 4.251 60.612
Z-score (Z-score) 845 -3.231 1.415 -11.769 3.823
Deposit-to-Loan Ratio (DRISK) 845 66.226 15.223 0.000 130.400
Panel B: Bank-Specific Factors
Bank Size (SIZE) 845 17.122 2.248 9.056 21.928
Management capability (OVER) 845 0.332 0.101 0.003 1.195
Profitability (ROA) 845 0.999 0.459 -1.326 3.593
Income Diversity (INV) 845 0.165 0.141 -0.914 1.011
Panel C: Macro-Specific Factors
Inflation (INF) 845 1.026 0.016 0.993 1.059
Social Financing Scale (SGDP) 845 0.283 0.052 0.219 0.399
Panel D: Bank’s FinTech Innovation Development Level Index
Bank’s FinTech innovation index (FTII) 845 0.018 0.053 0.000 1.000
Bank’s technology foundation index of FinTech innovation (TF-FTII) 845 0.012 0.047 0.000 1.000
Bank’s technology application index of FinTech innovation TA-FTII) 845 0.036 0.084 0.000 1.000
Panel E: Mediating variables
Capital Adequacy Ratio (CAR) 845 13.455 5.067 0.000 74.790
Operating income (INC) 845 13.945 1.943 8.154 18.295
Panel F: Tool Variables
Peking University Digital Financial Inclusion Index (PKU-DFII) 650 0.533 0.245 0.000 1.000
Note: The definitions and descriptive statistics (number of observations, mean, standard deviation, minimum and maximum values) are pro-
vided in the table for the variables used in this study.

Descriptive statistics Empirical model

The essential statistical characteristics of the main variables are The risk-taking level of commercial banks is influenced by bank
reported in Table 3. The mean value of commercial banks’ risk-taking FinTech, individual characteristics at the bank level, and macroeco-
is 15.197, the minimum value is 4.251, and the maximum value is nomic variables. For this reason, based on the above data and varia-
60.612, which indicates that there are significant differences in the bles, with reference to Zhao et al. (2022) and Lee et al. (2021),
risk-taking levels of different commercial banks. The mean value of the following balanced panel regression model is developed in
the commercial bank’s FinTech innovation index is 0.018, the mini- this paper:
mum value is 0, and the maximum value is 1, which indicates that
RISKit ¼ a0 þ a1 FTIIit þ g Controlit þ di þ eit ð1Þ
there are significant differences in the degree of FinTech innovation
development of different commercial banks and that some commer-
cial banks have not even begun to apply FinTech innovation. Individ- Where RISK is the asset-to-capital ratio, which measures the risk-
ual differences are relatively noticeable in other control variables, taking level of commercial banks and FTII is the core explanatory var-
which indicates that the sample has good differentiation. iable, which measures the FinTech innovation index of commercial
banks. Control is a set of control variables considered in this paper;
6
the subscript i denotes the sample banks, t represents the year, a1
To ensure comparability among data, the explanatory variables are normalized in
this paper; inflation and social financing scale are measured in billions of yuan, while
and g are regression coefficients, di is bank fixed effects, and eit is the
all other variables are measured in millions of yuan. random disturbance term.

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C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

After controlling the heteroskedasticity-corrected standard errors, Table 5

an ordinary least squares (OLS) approach is adopted to verify the Endogeneity test results.

impact of bank FinTech innovation on its risk-taking. To reduce the GMM IV1 IV2
potential endogeneity problems associated with reverse causality, (1) (2) (3)
referring to Ahamed and Mallick (2019) and Kim et al. (2020), a two-
FTII -0.315** -87.570*** -16.840***
stage least squares-instrumental variables approach (2SLS-IV) is (0.126) (14.340) (5.005)
used, as well as a systematic GMM approach for testing. In addition, SIZE 0.014** 1.916*** -0.929***
the research sample has been categorized three individual times: (0.006) (0.679) (0.223)
OVER 0.302** 11.030 3.542
first, regarding size, the sample banks have been divided into large-
(0.141) (8.139) (2.560)
scale and small-scale banks; second, using bank type as the division ROA -0.012 0.0318 -1.417***
criterion, the sample is divided into state-owned banks, joint-stock (0.023) (0.940) (0.410)
banks, city commercial banks, rural and village commercial banks; INV -0.166** -3.632*** -4.742***
third, in terms of bank competitiveness, sample banks have been (0.074) (1.249) (0.757)
INF 0.379** 34.070** -1.042
divided into more competitive and less competitive commercial
(0.182) (14.440) (7.963)
banks. Lastly, the heterogeneity is tested separately in each category. SGDP 0.392*** 18.920*** 4.533**
(0.112) (5.090) (1.998)
Results L.RISK 0.706***
(0.046)
_cons -60.020** 36.340***
Baseline regression (25.850) (9.620)
Individual fixed effects Control Control Control
The regression results are shown in Table 4 below. Columns (1) AR(1) (p-value) 0.000
and (2) are the baseline regression results, which are merely AR(2) (p-value) 0.863
Diff-in-Hansen test (p-value) 0.369
regressed for a bank’s FinTech innovation index and a commercial
N 780 650 780
bank’s risk-taking, and the coefficients of these two variables are R2 0.466 0.554
both significantly negative at the 1% level, indicating that a commer-
Note: *** and ** indicate significance at the statistical levels of 1% and 5%.
cial bank’s development of FinTech innovation, in general, reduces its
risk-taking level. Column (3) adds bank-level control variables to col-
umn (2), and column (4) adds macro-level control variables to col- are likely to increase loans to meet the demand for social financing,
umn (3). Both results indicate that a commercial bank’s FinTech does which in turn will lead to a corresponding increase in risk.
reduce its risk-taking level.
In terms of control variables, the larger the bank, the more pro- Endogeneity issues
nounced its reduction effect of developing FinTech innovation on risk-
taking. On the one hand, a large-sized bank would have a dramatic System GMM method
impact once risks arise; hence such banks are more cautious in their To reduce potential endogeneity problems, a system GMM
operations. On the other hand, large-sized banks can take advantage of approach (Blundell and Bond, 1998) is used in the paper to test the
their scale and make better use of FinTech innovation, thus reducing baseline results. On the one hand, the system GMM approach can
their risk-taking level. The improvement in banks’ profitability and the eliminate the strict exogenous assumptions of the regressions, unob-
increase in income diversity will also have the effect of reducing risk- served bank-specific effects, and path-dependence in the sequence of
taking. Because banks can obtain high returns through their current control-dependent variables. On the other hand, since bank risk may
operating status, there is no need to take more significant risks, which persist over time, the system GMM allows for the dynamic modeling
will correspondingly reduce their risk-taking motivation. Lastly, at the of bank risk. Considering that bank risk has dynamic continuation
macro level, the larger scale of social financing indicates the higher effects, the current risk-taking level may be influenced by the risk
demand for capital from enterprises or individuals in society, and banks level from the previous period. Therefore, a one-period lagged
explanatory variable, L.RISK, is introduced in the paper to construct a
Table 4 dynamic panel model, and the GMM estimation method is used to
Impact of a bank’s FinTech innovation on its risk-taking. test the baseline results. As shown in column (1) of Table 5, the
OLS FE
regression coefficient of the core explanatory variable FTII is signifi-
cantly negative, which is consistent with the previous regression
(1) (2) (3) (4)
results; thus, the results of this paper are not affected by potential
FTII -10.330 ***
-13.650 ***
-8.541 ***
-9.389*** endogeneity bias and show good robustness.
(2.737) (2.541) (2.494) (2.530)
SIZE -1.190*** -1.091***
Instrumental variables method
(0.187) (0.204)
OVER 1.405 1.029 FinTech innovation can influence the risk-taking level of commer-
(2.080) (2.087) cial banks, and likewise, commercial banks will take the initiative to
ROA -1.507*** -1.437*** seek technological changes and develop FinTech innovation for self-
(0.351) (0.352) development. Therefore, there may be a causal relationship between
INV -4.327*** -4.198***
FinTech innovation and commercial banks’ risk-taking. Potential
(1.055) (1.055)
INF 4.969 endogeneity can be reduced using the following two instrumental
(8.567) variable approaches (Roberts and Whited, 2013):
SGDP 5.310**
(2.638) (i) A commercial bank’s FinTech innovation will be influenced by the
_cons 15.380*** 15.440*** 37.470*** 29.230***
(0.153) (0.124) (3.737) (11.230)
external digital environment. If the external digital environment
Individual fixed effects Control Control Control Control is favorable, it will promote the bank’s interaction with the exter-
N 845 845 845 845 nal environment, strengthen strategic cooperation with other Fin-
R2 0.017 0.427 0.490 0.493 Tech companies or enterprises, and promote the bank’s FinTech
Note: *** and ** indicate significance at the statistical levels of 1% and 5%. innovation. To demonstrate whether the difference in digital
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C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

development levels in the region where the bank is located affects (Cheng and Qu, 2020) and use the difference-in-differences method
the impact of its FinTech innovation on risk-taking, referring to (DID) to reduce the potential intrinsic bias in the regression model.
Guo et al. (2020), the provincial-level digital financial inclusion Specifically, according to the statistical eigenvalues of bank-level var-
index compiled by the Digital Finance Research Center of Peking iables, the original samples are divided into treatment groups and
University is used as an instrumental variable (PKU-DFII) to mea- control groups in the paper (Chen et al., 2019b; Deng et al., 2020).
sure the level of regional digital development, after which two- First, the mean value of a bank’s FinTech innovation development
stage least squares (2sls) is applied for estimation. Before estima- level is used as the criterion to divide the original sample into banks
tion, a weak instrumental variables test with an F-value greater with a high level of FinTech innovation (treatment group) and banks
than 10 is conducted, indicating that there is no problem with with a low level of FinTech innovation (control group). The level of a
weak instrumental variables and that the instrumental variables bank’s FinTech innovation in the treatment group is higher than the
are valid. The estimation results of the instrumental variables mean value, and the level of a bank’s FinTech innovation in the con-
method are shown in column (2) of Table 5, where the coefficients trol group is lower than the mean value. Next, we constructed the fol-
of the core explanatory variables remain negative, indicating that lowing DID model:
the development of the bank’s FinTech innovation can signifi-
RISKit ¼ Constant þ a  Postit  Treatit þ g  Controlit þ Banki þ eit ð2Þ
cantly reduce its risk-taking, which is entirely consistent with the
previous results. Where the coefficients of Postit  Treatit reflect the treatment
effect of this policy on a bank’s risk-taking. The subscript i denotes
(ii) Given that a commercial bank’s risk-taking in the current period the individual bank, subscript t denotes the time, and RISKit is an
does not affect the FinTech innovation development level in the indicator of a bank’s risk-taking. Treatit is a dummy variable that is 1
previous period, with reference to Sheng’s study (2021), a one- for banks with a high level of FinTech innovation and 0 for banks
period lagged bank’s FinTech innovation index is used to replace with a low level of FinTech innovation. If the bank sample is after the
the current period value for re-estimation. The results are shown policy is enacted, Postit is 1, but if it is before the policy is enacted,
in column (3) of Table 5, and the coefficient of FTII is significantly the value is 0. Controlit are additional control variables, including
negative at the level of 1%, so the research results remain robust. management capacity (OVER), Inflation (INF), and social financing
scale (SGDP). Banki is a fixed effect of the bank; e is the error term.
Before running the difference-in-differences models (DID), we per-
Difference-in-differences Method (DID)
form a parallel trend test to test whether the data are feasible. The
The causal relationship between a bank’s FinTech innovation and
parallel trend test is shown in Fig. 2 below, and the results float
its risk-taking is analyzed using policy shocks regarding the develop-
around 0 for all six periods before the policy time point, indicating
ment of the bank’s FinTech innovation in the paper. In July 2015, the
that the parallel trend hypothesis is supported and can be analyzed
People’s Bank of China, with relevant ministries and commissions,
using the DID method.
took the lead in drafting, formulating, and issuing the “Guidance on
Next, the regression is conducted using DID method in this paper,
Promoting the Healthy Development of Internet Finance”. In accor-
and the results are shown in Table 6. Column (1) shows the empirical
dance with the general requirements, “encouraging innovation, pre-
results without adding control variables, and column (2) shows the
venting risks, drawing on advantages and avoiding disadvantages,
empirical results after adding control variables. The coefficients of
and developing healthily”, a series of policy measures were proposed
Post*Treat are significantly negative in both columns, indicating that
in the document to encourage innovation and support the stable
the development of a bank’s FinTech innovation reduces its risk-tak-
development of the Internet. As this policy plays a significant role in
ing. It can be seen that the results of this paper are not the result of
promoting the development of banks’ FinTech innovation, we take
potential endogeneity bias.
this guideline as a policy shock for banks’ FinTech innovation

Fig. 2. Parallel trend chart.

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C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

Table 6 Table 7
Impact of a bank’s FinTech innovation Mechanism test.
on its risk-taking (DID method).
RISK CAR INC RISK
DID (1) (2) (3) (4)

(1) (2) FTII -9.389*** 8.236** 3.507*** -7.320***

*** ***
(2.530) (3.263) (0.886) (2.506)
Post*Treat -3.350 -2.037 SIZE -1.091*** -1.817*** 0.264*** -1.359***
(0.311) (0.393) (0.204) (0.263) (0.071) (0.206)
Post -1.646*** OVER 1.029 -13.550*** -0.321 -1.387
(0.400) (2.087) (2.692) (0.731) (2.069)
Treat -0.518 ROA -1.437*** 1.728*** 0.704*** -1.008***
(0.344) (0.352) (0.454) (0.123) (0.355)
SIZE -0.004 INC -4.198*** 6.946*** -0.760** -3.127***
(0.316) (1.055) (1.360) (0.369) (1.047)
OVER 5.375* INF 4.969 -12.790 2.588 3.211
(3.061) (8.567) (11.050) (3.000) (8.364)
ROA -3.250*** SGDP 5.310** -2.237 0.676 5.043*
(0.514) (2.638) (3.403) (0.924) (2.574)
INC -2.758** CAR -0.174***
(1.147) (0.027)
INF 12.440 INC -0.181*
(8.746) (0.101)
SGDP 7.396*** _cons 29.230*** 59.800*** 6.041 40.730***
(2.636) (11.230) (14.480) (3.932) (11.090)
_cons 15.890*** 3.676 Individual fixed effects Control Control Control Control
(0.128) (12.740) N 845 845 845 845
N 781 781 R2 0.493 0.403 0.701 0.519
R2 0.530 0.602
Note: ***, **, and * indicate significant at the statistical levels of 1%, 5%, and 10%
Note: ***, **, and * indicate significance respectively.
at the statistical levels of 1%, 5%, and
10%, respectively.

Mechanism analysis is further analyzed in terms of the reduction in risk-taking by a com-

mercial bank’s FinTech innovation. Table 7 below shows the test
The previous findings show that a bank’s FinTech innovation results of the effect of a bank’s FinTech innovation on the level of
reduces its risk-taking, as evidenced by increased operating income risk-taking via two paths: business performance and risk control.
and capital adequacy ratio. To further explore the mechanism of a Column (1) of Table 7 shows the results of the baseline regression.
bank’s FinTech innovation on its risk-taking, the analysis is carried Columns (2) and (3) show that the estimated coefficients of a bank’s
out from two perspectives: increasing operating income and capital FinTech innovation index (FTII) on capital adequacy ratio (CAR) and
adequacy ratio. Drawing on the stepwise method of mediating effects operating income (INC) are significantly positive, which indicates
proposed by Preacher and Hayes (2008), we construct a multiple that a bank’s FinTech innovation significantly improves its business
mediating effects model consisting of four progressive equations, performance and risk-control ability. According to the regression
with the bank’s operating income and capital adequacy ratio as medi- results in column (4), after adding both the core explanatory varia-
ating variables. bles and the mediating variables, the estimated coefficient of a bank’s
FinTech innovation index (FTII) is significantly negative, and the esti-
RISKit ¼ a0 þ a1 FTIIit þ a2 Controlit þ ui þ eit ð3Þ
mated coefficients of the mediating variables, capital adequacy
INCit ¼ b0 þ b1 FTIIit þ b2 Controlit þ ui þ eit ð4Þ (CAR), and operating income (INC) are also significantly negative.
These results show that business performance and risk control play a
CARit ¼ g 0 þ g 1 FTIIit þ g 2 Controlit þ ui þ eit ð5Þ partially mediating role in the effect of a bank’s FinTech innovation
on its risk-taking.
RISKit ¼ d0 þ d1 FTIIit þ d2 INCit þ d3 CARit þ d4 Controlit þ ui þ eit ð6Þ In terms of the total contribution of the two types of mediating
effects, the mediating effect of a bank’s FinTech innovation in reduc-
According to the test steps of the multiple mediating effects ing its risk-taking by risk control is -1.433 (-0.174 £ 8.236), account-
model, the first step is to regress the model (3). If the regression ing for 15.3% of the total effect. The mediating effect of reducing its
results satisfy a1 , which are significantly negative, the next step can risk-taking by business performance is -0.635 (-0.181 £ 3.507),
be taken; otherwise, the test must be stopped. The second step is to accounting for 6.8% of the total effect. These results show the contri-
regress model (4) and model (5) simultaneously. If b1 is significantly butions of improving risk-control ability and business performance
positive, the value means that a bank’s FinTech innovation will to explain the increase in a bank’s FinTech innovation, as the reduc-
increase its operating income, thus enhancing the operating capacity tion in risk-taking has reached 15.3% and 6.8%, respectively. The
of commercial banks; if g 1 is significantly positive, the value indicates empirical results effectively identify that a bank’s FinTech innovation
that a bank’s FinTech innovation can significantly improve its risk affects risk-taking through the two paths, risk control capability and
control ability. The third step is to regress model (6). If the coeffi- business performance, thus expanding the study of a bank’s FinTech
cients d2 and d3 are significant but d1 is not significant, the results innovation. Therefore, Hypotheses 1 and 2 are valid.
mean that business performance and financial control play the role of
full mediator in the influence of a bank’s FinTech innovation on its Heterogeneity analysis
risk-taking; if the coefficients d1 , d2 and d3 are all significant, and the
value of d1 is decreased compared to a1 , the results indicate that the Level of bank’s FinTech innovation, bank size, and bank risk-taking
two mediating variables have partial mediating effects. In the follow- Studies have shown that bank size and capital buffers usually limit
ing empirical results, the contribution of the two mediating variables banks from taking more risks (Khan et al., 2017). To verify this view,
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C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

Table 8 Table 9
Heterogeneity test based on bank size. Heterogeneity test based on bank type.

Interaction term regression Regression in groups Interaction term Regression in groups

regression
(1) SCALE (2) SMALL (3) LARGE (1) TYPE (2) State-owned and (3) Others
FTII -3.598 -4.516* -12.620** joint-stock systems
(3.147) (2.479) (5.046) FTII -4.674* -17.260 -3.258
FTII*SCALE -15.080*** (2.688) (10.840) (2.176)
(5.050) FTII*TYPE -30.500***
SIZE -0.970*** -0.445** -1.831*** (6.446)
(0.208) (0.202) (0.426) SIZE -1.043*** -3.974*** 0.249
OVER 0.099 -1.104 -1.682 (0.201) (1.477) (0.294)
(2.113) (1.905) (5.072) OVER -0.161 -16.900 0.205
ROA -1.472*** -0.848*** -2.251*** (2.074) (12.970) (1.737)
(0.355) (0.323) (0.859) ROA -1.390*** -0.634 -0.975***
INC -4.393*** -2.106* -6.706*** (0.347) (2.278) (0.289)
(1.068) (1.099) (1.878) INC -3.839*** -6.118 -2.471***
INF 5.594 11.660 -5.216 (1.043) (6.257) (0.871)
(8.677) (10.080) (13.400) INF 5.252 -3.152 -20.050**
SGDP 5.606** 6.665** 2.915 (8.451) (25.060) (8.835)
(2.677) (3.091) (4.158) SGDP 5.890** 10.040 3.853
_cons 26.900** 8.322 59.120*** (2.605) (8.118) (2.376)
(11.360) (12.510) (19.290) M2GDP -6.775***
Individual fixed effects Control Control Control (1.415)
N 819 364 455 _cons 28.410** 104.600** 44.170***
R2 0.501 0.383 0.495 (11.070) (45.340) (10.330)
Note: ***, **, and * indicate significance at the statistical levels of 1%, 5%, and 10%, Individual fixed Control Control Control
respectively. effects
N 845 208 637
R2 0.508 0.527 0.470
Note: ***, **, and * indicate significance at the statistical levels of 1%, 5%, and 10%,
in line with research by Zhao et al. (2022), using bank size data from respectively.
the Wind database, the SCALE of large and medium-sized banks is
defined as large-scale banks, with a value of “1”; the SCALE of small social responsibility of maintaining financial stability. On the one
and micro banks is defined as small-scale banks, with a value of “0”. hand, the regulatory systems and governance mechanisms of state-
As shown in Table 8, column (1) is the result of the regression owned and joint-stock commercial banks are more mature and have
after adding the interaction term between the bank’s FinTech innova- better risk control capabilities due to facing additional risk manage-
tion index and the bank’s size (FTII*SCALE); that is, the larger the ment, information disclosure, and corporate governance. On the
commercial bank, the lower its risk-taking. One possible reason for other hand, as state-owned and joint-stock commercial banks must
the above result is that commercial banks can take full advantage of consider more complex factors in the operation process, they are
the scale. On the one hand, they can diversify the allocation of resour- more cautious than other banks. Columns (2) and (3) are grouped
ces to achieve the effect of risk diversification, improve their ability to regressions based on differences in bank types: column (2) shows the
manage and prevent risks comprehensively, and reduce risk-taking regression results of state-owned and joint-stock commercial banks,
 pez et al., 2011). On the other hand, they can save marginal costs,
(Lo and column (3) are the regression results of city, rural, and village
increase operating income, and reduce the incentive of risk-taking. commercial banks. After grouping, the sample size is too small, so the
Columns (2) and (3) are grouped regressions based on differences in conclusions obtained in this paper are not significant. The coefficient
bank size: column (2) shows the regression results of small-scale of column (2) is larger than that of column (3), which can indicate
(micro and small) commercial banks, while column (3) shows the that the role of state-owned and joint-stock commercial banks in
regression results of large-scale (medium and large) commercial developing FinTech innovation to reduce risk-taking may be more
banks. Both coefficients of columns (2) and (3) are significantly nega- vital. Thus, the conclusion is that Hypothesis 3 holds.
tive, and the coefficient of column (2) is smaller than that of column
(3), indicating that the larger the bank is, the stronger the effect of its
FinTech innovation in reducing risk-taking appears to be, which is Level of bank FinTech innovation, market structure, and banks’ risk-
consistent with the results in column (1). Thus, it is clear that taking
Hypothesis 3 holds. In addition, Boyd and De Nicolo (2005) indicate that banks may
enhance their risk-taking behavior in less competitive markets
Level of bank’s FinTech innovation, bank type, and bank risk-taking (FSB, 2017; Anagnostopoulos, 2018). Therefore, referring to research
Existing studies generally maintain that banks differ under differ- by Banna et al. (2021), we analyze whether there is heterogeneity
ent ownership structures (Huang et al., 2017). For this reason, the from the banking competition level to the relationship between a
division method of bank types in the Wind database is used, and bank’s FinTech innovation index and its risk-taking. In the paper, the
bank types (TYPE) are divided into a group of state-owned and joint- net interest margin (NII), which means the share of interest income
stock commercial banks with a value of “1”, and a group of city, rural, in the interest-bearing assets, is used as a proxy variable for bank
and village commercial banks with a value of “0”. competition level. The higher the indicator, the less competitive the
As shown in Table 9, column (1) shows the regression results after banking system. Since there are significant differences in competition
adding the interaction term between the bank’s FinTech innovation levels among banks, it is difficult to distinguish the differences in
index and the type of bank (FTII*TYPE). Compared with other kinds banks’ competitiveness if the average value is directly used to judge
of banks, state-owned and joint-stock commercial banks have a more the level of competition. Therefore, in this paper, the first quartile
significant effect on the reduction of risk-taking in FinTech innova- (25%) of net interest margin (NII) is used as the standard to divide the
tion development. One possible reason is that state-owned and joint- overall sample of banks. The samples of banks with NII above 25%
stock commercial banks not only pursue profits but also shoulder the belong to one group with a value of “1”, and the rest belong to
11
C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

Table 10 innovation exhibits more obvious effects on risk-taking. Columns (2)

Heterogeneity test based on bank competitiveness. and (3) are the results of group regressions according to bank size.
Interaction term Regression in groups The coefficients of both regression results are significantly negative,
regression and the coefficient of column (2) is larger than that of column (3).
(1) NII (2) LOWER (3) HIGHER The results indicate that the higher the level of competition, the
FTII -45.150*** -21.660*** -6.781** more significant the effect of FinTech innovation on the reduction in
(13.330) (7.043) (2.639) risk-taking, which is consistent with the results of column (1). Thus,
NII 0.214 the conclusion is that Hypothesis 3 holds.
(0.138)
FTII*NII 12.890***
(4.731) Robustness analysis
SIZE -0.877*** -1.629*** -0.895***
(0.222) (0.475) (0.230)
OVER 1.913 -1.449 6.626** Considering the measure: proxy variables for the level of a bank’s
(2.304) (4.516) (2.790)
FinTech innovation and its risk-taking
ROA -1.397*** -1.457* -0.906**
(0.352) (0.871) (0.419) To further illustrate the reliability and validity of the findings, we
INC -3.586*** -6.259*** -4.964*** conduct robustness tests on the baseline regression findings from
(1.074) (1.970) (1.292) four perspectives: reconstructing explanatory variables, replacing
INF 5.568 -7.239 9.651 explained variables, tail-shrinking treatment, and removing the sam-
(8.575) (18.080) (9.344)
SGDP 6.378** 7.422 5.998**
ples prior to 2010.
(2.646) (4.741) (3.044) As can be seen from Table 11, columns (1) and (2) are the regres-
_cons 23.680** 53.860** 18.170 sion results after replacing the measure of the FinTech innovation
(11.320) (22.160) (12.440) index (FTII). The explanatory variable (FTII) in the baseline regression
Individual fixed effects Control Control Control
measures the degree of FinTech innovation based on the summed
N 845 201 635
R2 0.500 0.657 0.571 word frequency of all words related to FinTech innovation in com-
mercial banks. However, in column (1), we take only the vocabulary
Note: ***, **, and * indicate significance at the statistical levels of 1%, 5%, and 10%,
respectively. frequencies of words related to the technology foundation (TF-FTII)
in the development of FinTech innovation in commercial banks. In
column (2), we take only the vocabulary frequencies of words related
to the technology application of FinTech innovation (TA-FTII) in com-
another group with a value of “0”; they are then regressed separately. mercial banks. The regression results are still significant, indicating
The results are shown in column (1) of Table 10, where the inter- that the conclusions of this paper are robust. Columns (3) and (4) are
action term (FTII*NII) between the level of a bank’s FinTech innova- the regression results after replacing the risk-taking variables of com-
tion and net interest margin is significantly positive; in contrast, the mercial banks. For the baseline results, the capital-to-asset ratio
baseline regression results of this research are significantly negative. (RISK) is used to measure the risk-taking level of commercial banks.
The results indicate that the higher a bank’s net interest margin is, To ensure the robustness of the empirical results, we refer to research
the weaker the competitiveness of the banking system will be, and by Danisman and Tarazi (2020), Houston et al.(2010), and Laeven and
that the bank’s net interest margin inhibits a reduction in risk-taking Levine (2009) to perform robustness tests using Z-score, and the
caused by the bank’s FinTech innovation and vice versa. For banks results remain consistent with previous results. In addition, referring
with strong banking system competitiveness, the bank’s FinTech to research by Zhao et al. (2022), the deposit-to-loan ratio (DRISK) is

Table 11
Robustness tests.

Replacement of X-measures Replace the y variable Tail-shrinking treatment Change sample

(1) TF-FTII (2) TA-FTII (3) Z-score (4) DRISK (5) RISK (6) RISK

TF-FTII -8.649***
(2.759)
SIZE -1.137*** -1.029*** -0.0004 -0.104 -0.895*** -0.968***
(0.203) (0.204) (0.005) (0.673) (0.177) (0.231)
OVER 1.114 0.692 -0.192*** -62.510*** 2.856 5.184**
(2.093) (2.079) (0.051) (6.898) (2.135) (2.272)
ROA -1.438*** -1.441*** -3.089*** -8.007*** -1.405*** -1.301***
(0.353) (0.350) (0.009) (1.163) (0.344) (0.361)
INC -4.226*** -4.149*** -0.152*** 9.118*** -4.734*** -4.994***
(1.057) (1.051) (0.026) (3.486) (1.020) (0.936)
INF 4.116 5.907 0.440** 38.110 1.321 2.305
(8.579) (8.536) (0.210) (28.310) (7.138) (9.136)
SGDP 4.873* 5.923** 0.141** 23.390*** 4.482** 1.660
(2.636) (2.638) (0.065) (8.720) (2.215) (2.171)
TA-FTII -7.865***
(1.752)
FTII -0.228*** 43.360*** -24.370*** -20.130***
(0.062) (8.363) (3.832) (3.386)
_cons 30.940*** 27.260** -0.537* 48.750 29.450*** 29.550**
(11.220) (11.200) (0.275) (37.100) (9.432) (11.760)
Individual fixed effects Control Control Control Control Control Control
N 845 845 845 845 845 715
R2 0.491 0.497 0.997 0.566 0.525 0.623
Note: ***, **, and * indicate significant at the statistical levels of 1%, 5%, and 10% respectively.

12
C. Li, S. He, Y. Tian et al. Journal of Innovation & Knowledge 7 (2022) 100219

used as a proxy variable for a commercial bank’s risk-taking and the the conclusions of similar research, and subdivide the bank risk-tak-
baseline results of the research regress once again. The re-regression ing variables to further characterize the types of bank risks in order
results show that a bank’s FinTech innovation will increase its liquid- to provide banks with more valuable suggestions.
ity level by increasing its deposit-to-loan ratio so as to reduce risk-
taking. Funding Statement

Consider sample selection The authors did not receive specific funding.
In Table 11, column (5) shows the regression results after the tai-
loring process. To eliminate the influence of some extreme values on Data Availability Statement
the regression results, we apply 1% tailoring to all continuous varia-
bles in the sample, and the results are still consistent with the previ- The data used to support the findings of this study are included
ous ones. Column (6) shows the regression results after deleting data within the article.
prior to 2010. Firstly, during the period from 2008 to 2010, the level
of bank FinTech innovation development was very shallow; secondly,
Author Contributions
the 2008 global financial crisis may still have had an impact on bank-
ing risk. Thus, to avoid the impact on the baseline results, we delete
Conceptualization, Chengming Li and Si He; Methodology, Lu
the sample data between 2008 and 2010 before regression and the
Ning; Software, Chengming Li and Si He; Validation, Shiqi Sun, Yuan
results remain significant.
Tian; Formal Analysis, Chengming Li and Lu Ning; Investigation, Yuan
Tian and Si He; Resources, Shiqi Sun; Data Curation, Chengming Li
Conclusion
and Si He; Writing − Original Draft Preparation, Chengming Li and Si
He; Writing − Review & Editing, Yuan Tian, Chengming Li and Lu
Unlike most existing studies, this paper is not based on macro or
Ning; Visualization, Yuan Tian; Supervision, Chengming Li and Lu
regional FinTech innovation. Instead, our research is based on the
Ning; Project Administration, Chengming Li and Lu Ning; Funding
perspective of bank FinTech innovation at the micro level to explore
Acquisition, Chengming Li and Lu Ning.
the impact on banks’ risk-taking. Using the panel data of 65 Chinese
commercial banks from 2008 to 2020, we have innovatively con-
structed a bank-level FinTech innovation index using web crawler Conflicts of Interest
technology to count news items related to commercial bank FinTech
innovation terms from Baidu News advanced retrieval. The results The authors declare that they have no competing interest.
obtained are the following. First, the improvement of a commercial
bank’s FinTech innovation can reduce its risk-taking levels in general; CRediT authorship contribution statement
the higher the degree of FinTech innovation a commercial bank has,
the lower the risk-taking levels it will bear. Second, the result of the Chengming Li: Conceptualization, Software, Formal analysis, Data
mechanism analysis shows that a bank’s FinTech innovation reduces curation, Writing – original draft, Writing – review & editing, Super-
its risk-taking through two channels, namely, increasing operating vision, Project administration, Funding acquisition. Si He: Conceptu-
income and capital adequacy ratio. Third, heterogeneity analysis of alization, Software, Investigation, Data curation, Writing − original
bank size, bank type, and competitiveness shows that larger, state- draft. Yuan Tian: Validation, Investigation, Writing − review & edit-
owned, joint-stock, and highly-competitive commercial banks have a ing, Visualization. Shiqi Sun: Validation, Resources. Lu Ning: Meth-
more pronounced effect on risk-taking reduction in developing Fin- odology, Formal analysis, Writing − review & editing, Supervision,
Tech innovation. Project administration, Funding acquisition.
In view of the above conclusions, we have some suggestions for
commercial banks. First and foremost, all commercial banks should References
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