Working Paper: CEPR ID: DP15502
Authors: Giulio Cornelli; Sebastian Doerr; Leonardo Gambacorta; Ouarda Merrouche
Abstract: Policymakers around the world are adopting regulatory sandboxes as a tool for spurring innovation in the financial sector while keeping alert to emerging risks. Using unique data for the UK, this paper provides first evidence on the effectiveness of the world's first sandbox in improving fintechs' access to finance. Firms entering the sandbox see a significant increase of 15% in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%. Our results suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty. Our results are similar when we exploit the staggered introduction of the sandbox and compare firms in earlier to those in later sandbox cohorts, and when we compare participating firms to a matched set of comparable firms that never enters the sandbox.
Keywords: fintech; regulatory sandbox; startups; venture capital
JEL Codes: G32; G38; M13; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regulatory sandbox entry (G18) | fintech funding (G24) |
| regulatory sandbox entry (G18) | probability of raising capital (G24) |
| regulatory sandbox entry (G18) | information asymmetries and regulatory costs (G18) |
| regulatory sandbox entry (G18) | first-time investors (G11) |
| regulatory sandbox entry (G18) | foreign investors (F21) |
| regulatory sandbox entry (G18) | marketing device (M31) |
| regulatory sandbox entry (G18) | stamp of approval (Y60) |
| regulatory sandbox entry (G18) | regulatory uncertainty (D89) |
| regulatory sandbox entry (G18) | enhanced access to funding (O16) |