How Valuable Is FinTech Innovation?

Review of Financial Studies, Forthcoming

58 Pages Posted: 29 Jan 2018 Last revised: 7 Oct 2018

See all articles by Mark A. Chen

Mark A. Chen

Georgia State University - Robinson College of Business

Qinxi Wu

Baylor University - Hankamer School of Business

Baozhong Yang

Georgia State University - Robinson College of Business

Date Written: September 30, 2018

Abstract

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

Suggested Citation

Chen, Mark A. and Wu, Qinxi and Yang, Baozhong, How Valuable Is FinTech Innovation? (September 30, 2018). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3106892 or http://dx.doi.org/10.2139/ssrn.3106892

Mark A. Chen (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Suite 1230
Atlanta, GA 30303-3083
United States

Qinxi Wu

Baylor University - Hankamer School of Business ( email )

Waco, TX 76798
United States

Baozhong Yang

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www2.gsu.edu/~fncbyy/index.html

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