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Finance and firm volatility evidence from Alibaba FinTech Credit in China


The online trading platform Alibaba provides financial technology (FinTech) credit for millions of micro, small, and medium enterprises (MSMEs). Using an internal credit score threshold that governs the allocation of credit, we apply a Fuzzy Regression Discontinuity Design (RDD) to explore the causal effect of credit access on firm volatility. We find that credit access significantly reduces firm sales volatility and that the effect is strongly countercyclical. We also find that the negative effect on firm volatility is concentrated in firms that are in regions with lower economic growth and poorer legal environment and contract enforcement, and that are in more competitive industries. We further use natural hazards as an exogenous shock and find that firms with access to FinTech credit are more resilient to external shocks. Overall, our findings contribute to a better understanding of the role of FinTech credit in MSMEs.