Internet finance, private firm financing, and investment: Evidence from China

Abstract

We examine a private firm’s borrowing behavior from Internet finance and other financial channels, including banks, small financial institutions, and private lending, in all provinces of China from 2013 to 2015. We seek answers to two questions: Does the development of internet finance facilitate private firms to borrow more and cheaply from internet finance? Do private firms borrow from internet finance to make new investments? To measure the development of internet finance, we adopt the internet finance development index. The results suggest that private firms borrow more from internet finance if they are in regions with high internet finance development. However, firms must pay high interest rates for internet finance. Moreover, internet finance does not help in private firms’ new investment. This study fills the research gaps in the internet finance literature. Our findings and implications are helpful for private firms, internet finance practitioners, researchers, and policymakers.