Does digital transformation increase bank profit efficiency? Evidence from China

Abstract

Utilizing data from 2014 to 2020 on Chinese commercial banks, this study investigates the effects of digital transformation on bank profit efficiency. A unique digital transformation index was constructed for commercial banks using the entropy method, incorporating diverse, hand-collected data sources. The results reveal a significant positive relationship between digital transformation and profit efficiency in banks. This association is primarily attributed to digital transformation's role in boosting revenue and reducing costs, consequently improving profit efficiency. These conclusions remain steadfast even after accounting for various robustness checks and potential endogeneity issues.