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Digital transformation, diversification and stability: What do we know about banks?

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  • Khattak, Mudeer Ahmed
  • Ali, Mohsin
  • Azmi, Wajahat
  • Rizvi, Syed Aun R.

Abstract

Banks focus on digital transformation to improve their overall efficiency and reduce operational costs. In this study, we argue that banks focusing on diversification might not benefit from digital transformation in context of stability. Precisely, this study explores the impact of digital transformation on banks’ stability while considering diversification as an important factor. Overall, the results suggest that investment in technology and increased diversification makes banks riskier and more fragile. More importantly, we report digital transformation and the diversification to be substitutes in impacting the stability. In other words, we show digital transformation is beneficial for banks with low-income diversification. The reported findings have implications.

Suggested Citation

  • Khattak, Mudeer Ahmed & Ali, Mohsin & Azmi, Wajahat & Rizvi, Syed Aun R., 2023. "Digital transformation, diversification and stability: What do we know about banks?," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 122-132.
    • Handle: RePEc:eee:ecanpo:v:78:y:2023:i:c:p:122-132
    DOI: 10.1016/j.eap.2023.03.004
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    Cited by:

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    2. Hui Zhou & Lin Xu, 2023. "Bank Digital Transformation and Enterprise Innovation—Evidence from China," Sustainability, MDPI, vol. 15(22), pages 1-25, November.
    3. Ting Yao & Liangrong Song, 2023. "Can digital transformation reduce bank systemic risk? Empirical evidence from listed banks in China," Economic Change and Restructuring, Springer, vol. 56(6), pages 4445-4463, December.

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    More about this item

    Keywords

    Digital transformation; Diversification; Stability; Asia; Technology;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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