The dynamic linkage between fintech venture capital funding, bank credit flows, and equity market movement: evidence from a global perspective

Abstract This study examines the causal relationship between financial technology startup venture capital (VC) financing and its deals with domestic credit provided by the banking sector and equity market movement. Despite the rise of alternative finance, such as fintech venture capital (it is the fund that venture capital firms put into young, promising fintech companies so that they can help them expand and scale quickly), which is yet underexplored, borrowers still heavily rely on banks and the stock market for financing. We use panel data from 57 countries from 2010 to 2020 and an advanced econometric method called the cross-sectional autoregressive distributed lag model (CS-ARDL) to determine how the size and number of fintech equity funds dealt with by venture capital firms, banking sector credit, and stock market returns are interrelated at the global level and across regional, income, and economic levels. Our results reveal a cointegrating relationship between fintech venture capital funding and deals with bank loans and equity market returns. However, this relationship varies across the regions studied and between developed and developing economies. Our findings provide crucial guidelines for policymakers to create policies that support balanced financial development by highlighting the global interaction of equity market movements, banking credit, and fintech venture capital investment and lay the groundwork for internationally aligned policies to guarantee the optimal distribution of financial capital and improve economic stability and adaptability by illustrating how these links differ across geographical locations and economic conditions.