Fintech, strategic incentives and investment to human capital, and MSEs innovation

Using a nationally representative micro and small enterprises (MSEs) survey data and Digital Financial Inclusion Index in China, we empirically study whether and how fintech impacts the innovation of MSEs. We find that the development of fintech significantly increases the probability of engaging in innovation activities, and promotes MSEs innovation input and output. The mechanisms lie in that fintech promotes long-term strategic incentives and investment to human capital of MSEs, including choosing promotion and stock as incentives instead of gifts or trips, recruiting more university graduate students, increasing training fees and technician incomes. In the heterogeneity analysis, we find that fintech has a greater impact on those MSEs which are without government subsidies and with lower technical level, higher CEO education level. Further analysis shows that coverage breadth of fintech has greater impact on MSEs innovation. This paper enriches the micro mechanisms of fintech impacts on MSEs innovation, and provides a policy basis for releasing the innovation vitality of MSEs.