Banks’ investments in fintech ventures

Section snippets

Data and sample

We obtain data on startup financings from Crunchbase (CB). CB data have been used in a range of VC studies (e.g., Alexy et al. 2012, Aragon et al. 2018, Ewens et al. 2018, Wang 2018, Park et al. 2020). CB provides details for startups’ funding information, including the date of announcement, investment type, the amount of funds raised, the list of investors, etc. The unique investor-, investee-, and funding round-identifiers in CB allow us to construct the complete investment histories of all

Banks’ IPO exits in fintech startups

To examine whether the increasing trend in fintech investments by banks (Fig. 1) is consistent with their better performance in fintech investments than IVCs, we employ the following probit model, using IVCs’ investments in fintech startups as the control group:IPOi,j=α+β1Bankj*FinTechi+β2Bankj+β3FinTechi+γX+Industry+InvestmentYear+ε.
The unit of observation in the specification is the investor-startup pair at the first hand-shake: if N investors (banks or IVCs) invest in a firm, there will be N 

Conclusion

We investigate the performance of banks’ growing investments in fintech ventures and explore alternative mechanisms of banks’ outperformance. Our study provides insights into the interactions between banks and fintech firms, as well as the long-run impact of fintech entrants on the banking industry. Using data on startup financings, we show that the rise of fintechs provides banks with opportunities to invest and improve portfolio performance in the venture capital market, which complements

CRediT authorship contribution statement

Emma Li: Conceptualization, Methodology, Writing – review & editing. Mike Qinghao Mao: Conceptualization, Supervision, Writing – review & editing. Hong Feng Zhang: Formal analysis, Software, Writing – review & editing. Hao Zheng: Data curation, Software, Writing – original draft.

Acknowledgments

We would like to thank Crunchbase for providing the data, and Jason Zein, Ronald W. Masulis, Lili Dai, Ning Gong, Xiaoyang Li, Ed Lin, Xiangkang Yin, Robert Xiao, and seminar participants at FIRN Banking and Financial Stability Meeting 2021 and Deakin University for helpful comments and suggestions.