The Fintech Paradox: Re-evaluating Financial Technology Adoption, Investment Efficiency, and Firm Size in an Emerging Market

Abstract

While the rapid expansion of financial technology (fintech) promises enhanced corporate valuation and investment efficiency, its value-creating potential within capital-intensive real sectors remains empirically contested. Addressing this critical gap, this study investigates the impact of fintech adoption on firm value among manufacturing enterprises in an emerging market, evaluating investment efficiency as a mediating mechanism and firm size as a boundary condition. Utilizing a balanced panel dataset of 162 manufacturing firms listed on the Indonesia Stock Exchange yielding 324 firm-year observations from the 2022–2024 period after applying a lagged model design this study employs a Two-Way Fixed Effects (TWFE) regression framework to mitigate unobserved firm and time heterogeneity. Contrary to prevailing digital optimism, the empirical findings reveal the existence of a "Fintech Paradox": digital financial integration fails to exert a statistically significant direct effect on market valuation (Tobin’s Q) or significantly optimize capital allocation. Consequently, the hypothesized mediation paths are broken. Furthermore, firm size does not positively moderate this relationship; rather, a larger organizational scale exerts a direct, negative pressure on firm value. These findings demonstrate that within rigid, large-scale manufacturing environments, bureaucratic inertia and massive physical adjustment costs temporarily neutralize the theoretical benefits of financial digitization. Ultimately, this study cautions that fintech adoption is not a universal value driver and requires fundamental organizational agility to succeed in capital-intensive sectors.