Assessing the Impact of Digital Finance on the Total Factor Productivity of Commercial Banks: An Empirical Analysis of China

Abstract

With the development of technologies such as big data and artificial intelligence, digital technology and finance are becoming increasingly intertwined. At present, digital finance has altered the competitive environment of commercial banks, and the traditional competitive edges in service scenarios and channels, customer information, and capital have been challenged. Based on perfect competition and technology spillover effects, this study attempted to measure the impact of digital finance on commercial banks’ total factor productivity (TFP) and its mediating and moderating mechanisms. We have used the data envelopment analysis-based Malmquist productivity index to measure the total factor productivity of 132 commercial banks in China between 2011 and 2019. The results show that (a) digital finance significantly enhances the TFP of commercial banks; (b) risk taking partially mediates the relationship between digital finance and TFP. The study further tests the effect of the nature of property rights and the moderating effect of diversification. The findings suggest that digital finance significantly improves the TFP of non-state-owned commercial banks but has no significant effect on the TFP of state-owned commercial banks. Additionally, the implementation of diversification can strengthen the effect of digital finance on TFP.

Keywords

• digital finance
• total factor productivity
• commercial banks
• risk taking