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Discussion Paper Details

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Title: Inside the Regulatory Sandbox: Effects on Fintech Funding

Author(s): Giulio Cornelli, Sebastian Doerr, Leonardo Gambacorta and Ouarda Merrouche

Publication Date: November 2020

Keyword(s): Fintech, regulatory sandbox, Startups and venture capital

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Cornelli, G, Doerr, S, Gambacorta, L and Merrouche, O. 2020. 'Inside the Regulatory Sandbox: Effects on Fintech Funding'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15502