Regulatory sandbox system and its impact on financial efficiency: a quasi-natural experiment study

Abstract

The regulatory sandbox system represents a significant attempt by financial regulatory authorities to balance between financial innovation and regulation. This paper, based on panel data from 31 provinces and cities in China from 2011 to 2022, treats the establishment of the regulatory sandbox system as a quasi-natural experiment and employs the difference-in-differences method to examine its impact on financial efficiency. The results show that: (1) Implementing the regulatory sandbox system significantly improves financial efficiency, and this conclusion remains valid after various robustness tests. (2) The impact of the regulatory sandbox system on financial efficiency is heterogeneous, with significant differences across regions, degrees of openness, and levels of financial development. (3) Reducing the degree of government intervention and enhancing the level of technological innovation are important mechanisms through which the regulatory sandbox system improves financial efficiency. This study provides useful references for countries looking to use regulatory sandbox systems to enhance regulatory efficiency.

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