How Valuable Is FinTech Innovation?
Review of Financial Studies, Forthcoming
58 Pages Posted: 29 Jan 2018 Last revised: 7 Oct 2018
Date Written: September 30, 2018
We provide large-scale evidence on the occurrence and value of FinTech innovation. Using a unique dataset of patent filings covering 2003-2017, we apply text-based machine learning to identify and classify innovations according to their key underlying technologies. To measure the value of FinTech innovations for firms and industries, we develop a new method that combines stock price responses with estimated patent-filing count intensities. Our cross-sectional analysis shows that most types of FinTech innovation yield positive value to innovators, with Blockchain being particularly valuable. For the financial sector as a whole, Internet of Things (IoT), Robo-Advising, and Blockchain are the most valuable innovation types. Innovations impact industries more negatively when they involve disruptive technologies that originate from nonfinancial startups. Also, market leaders that have invested heavily in their own innovation appear to avoid much of the negative value effect from disruptive innovation by startups.
Keywords: FinTech, innovation, patents, valuation, abnormal returns, machine learning, text analysis, text classification, market leader, market follower, disruption
JEL Classification: G10, G14, G19, G20
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