Does digital transformation improve the cost efficiency of commercial banks? Evidence from China

Chuang Shen, Junyi Wu, Ying Li and Qian Chen

Finance Research Letters, 2025, vol. 73, issue C

Abstract: This study explores the impact of digital transformation on the cost efficiency of commercial banks. Using panel data from 131 banks in China from 2013 to 2022, and employing text mining and entropy method to measure bank digital transformation index, we find that digital transformation significantly improves banks’ cost efficiency. Digital transformation exerts its influence on banks’ cost efficiency through four intermediary channels: facilitating business diversification, diminishing information asymmetry, enhancing fund utilization efficiency, and reducing risk. Moreover, heterogeneity analysis reveals that the impact of digital transformation on cost efficiency varies by bank size, capital status, asset structure, and ownership structure.

Keywords: Digital transformation; Commercial banks; Cost efficiency (search for similar items in EconPapers)
JEL-codes: G21 O31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016489

DOI: 10.1016/j.frl.2024.106619

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