Nonlinear effects of FinTech adoption on ESG disclosure: Evidence from emerging economies and the role of institutional heterogeneity

This study investigates the nuanced, non-linear relationship between FinTech adoption and Environmental, Social, and Governance (ESG) performance in emerging markets—a dimension largely underexplored in the existing literature. Using a unique FinTech adoption index developed via text-mining and factor analysis, we analyze a panel dataset of 93 banks across nine emerging economies from 2015 to 2022. Unlike prior studies that predominantly report a positive linear relationship, our findings reveal a U-shaped relationship, where early FinTech adoption constrains ESG disclosure due to resource pressures, but more advanced adoption enhances ESG disclosure scores through operational efficiency and improved transparency. We further demonstrate that smaller and private banks benefit more from FinTech adoption, underscoring the role of institutional heterogeneity. Robustness checks using alternative samples and endogeneity treatments affirm these results. While offering new insights into the dynamic FinTech-ESG interplay, the study acknowledges limitations in generalizability due to the exclusion of China and reliance on Bloomberg ESG scores. These findings offer actionable implications for policymakers in rapidly evolving emerging market contexts.