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Can bank digitization reduce corporate overinvestment?

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  • Shi, Lina
  • Zhang, Shuxin
  • Ji, Yu

Abstract

This study investigates the impact of lending banks’ digitization on corporate overinvestment. Utilizing a text analysis to quantify the digital transformation level of banks, we test and find firms governed by more digitized banks exhibit significantly lower overinvestment. This effect is more pronounced among informationally opaque firms. Our results suggest that lending banks’ digitization reduces overinvesting activities by restricting firms’ free cash flow and decreasing investment scale. Our findings contribute to the growing literature about the impacts of lending banks’ digitization on corporations and inform the governance effect of digitized banks by demonstrating investment efficiency benefits.

Suggested Citation

  • Shi, Lina & Zhang, Shuxin & Ji, Yu, 2025. "Can bank digitization reduce corporate overinvestment?," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325003915
    DOI: 10.1016/j.frl.2025.107128
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