Brexit and the fintech revolution in Europe: lessons from the Bulgarian digital finance sector

Abstract

Purpose This paper aims to investigate the drivers of the resilience of the fintech sector in emerging Europe (EU) by analyzing the performance of 128 Bulgarian fintech companies in the period around the Referendum for Brexit in 2016. The Referendum was followed by a rapid growth of the Bulgarian fintech sector at a moment when venture capital funding was limited, which challenged firms to improve their fundamentals. Design/methodology/approach This empirical paper uses descriptive and panel data analysis based on the firm balance sheet and income statement data at the annual level. Findings The results show that larger and better-capitalized firms, which outsource their non-core activities and focus on their main competitive strengths, tend to have higher operating income and profit. The authors also find positive real-economy effects as these companies hire more actively to maintain growth. The results are primarily driven by the post-Brexit period of 2016–2019 when the authors find a tighter link between performance and firm fundamentals. These results have important managerial and policy implications and provide interesting directions for future research. Practical implications The findings have important management and policy implications. The authors argue that the flexibility of the Bulgarian fintech cluster, including the practice of Bulgarian fintech startups to outsource non-core activities; the readiness of universities to open new master programs to address firm demand for skilled labor and the startup-friendly environment in the main cluster hotspot, Sofia, has contributed to the resilience of the sector and can explain the drivers behind our findings. Fintech firms are very efficient in utilizing external services to foster their performance and growth, which may suggest that public policies that provide financial support for cloud services and outsourcing for startups during downturns or crises may improve economic growth and may have positive externalities for the supporting sectors that provide these services. Originality/value This paper fulfills an identified need to study the drivers of Fintech performance to identify best practices for managerial actions during economic or political crises, as well as government policy recommendations. To the best of the authors knowledge, this is one of the first empirical academic studies that examine the impact of Brexit on the European Fintech sector and real economy. The identified managerial strategies for ensuring regional resilience to economic crises and political shocks can be applied in various settings within and outside the EU.