The study indicates that under conditions of financial repression, a enterprise’s ESG performance significantly impacts the extent of its short-term debt used for long-term purposes. The mechanism test reveals that ESG performance mitigates the degree of short-term debt for long-term use through three pathways: enhancing information transparency, alleviating financing constraints, and curbing excessive investment. Further research suggests that the influence of ESG performance on the use of short-term debt for long-term purposes is more pronounced among private enterprises, high-pollution and high-energy-consuming enterprises, and enterprises in underdeveloped regions. This paper enriches the research on the relationship between ESG performance and corporate financing decisions.

Financial repression—regulating interest rates below the laissez-faire equilibrium—has historically impeded investment in developing economies. In China, bank deposits were long subject to binding interest rate caps. Using transaction and local penetration data from a leading FinTech payment company, we study the FinTech’s introduction of a money market fund (MMF) with deposit-like withdrawal features but uncapped interest rates aids in interest rate liberalization. In aggregate, MMF assets grow rapidly, and banks whose deposit base was more exposed to the payment app see greater outflows. These outflows are concentrated in household demand deposits, for which the MMF is the closest substitute. Contrary to regulator concerns, exposed bank profitability does not decline. Rather, exposed banks invest more in financial innovation and are more likely to launch competing funds with similar features. Our results highlight how FinTech competition stimulates interest rate liberalization among traditional banks by introducing competition for funding.