How FinTech Improves Financial Reporting Quality? Evidence from Earnings Management

This study investigates how FinTech development affects financial reporting quality. We characterize the regional FinTech development using manually collected information on FinTech patents, and find that regional FinTech development reduces local firms’ real earnings management. The mechanism analyses support that FinTech curbs managerial opportunistic financial reporting by improving information production, facilitating external monitoring, and mitigating financial constraints. Regional FinTech development plays a more pronounced role in curbing real earnings management under stronger earnings manipulation incentives. The enhanced financial reporting quality is associated with stronger market reactions to earnings announcements. The alternative explanations of substitution for accrual-based earnings management and improving economic fundamentals are further excluded. The results are robust to identification strategies including the instrumental variable approach. Our findings empirically contribute to the power of FinTech in monitoring financial markets, and financial development regarding technological advances