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

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  • Shen, Chuang
  • Wu, Junyi
  • Li, Ying
  • Chen, Qian

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.

Suggested Citation

  • Shen, Chuang & Wu, Junyi & Li, Ying & Chen, Qian, 2025. "Does digital transformation improve the cost efficiency of commercial banks? Evidence from China," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016489
    DOI: 10.1016/j.frl.2024.106619
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    Cited by:

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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