Impact of Digital Economy on the Profitability of Urban Commercial Banks: Evidence from China

Abstract

With the rapid development of digital technology and widespread Internet access, digital economy is gradually becoming a cornerstone to promote global economic growth. Promoting the high-quality development of urban commercial banks is highly important to avoid systemic risks and ensure financial security. Whether digital economy can become the driving force for the development of urban commercial banks remains to be discussed. This paper focuses on urban commercial banks and adopts two-way fixed effects (TWFE) models to examine the impact of digital economy on the profitability and operational risks of urban commercial banks. The results indicate that, firstly, digital economy can significantly enhance the profitability of urban commercial banks and reduce operational risks; Secondly, lags exist in the impact of digital economy on urban commercial banks, and there are heterogeneous impacts in different quantiles. We believe that urban commercial banks should actively face the development of digital economy and take the advantage of the convenience brought by digital economy to develop themselves. In addition, urban commercial banks should expand their diversified businesses, use digital technology to reduce costs, improve asset quality, and strengthen their risk management.