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Digitalization and banks' efficiency: Evidence from a European analysis

Author

Listed:
  • Ayadi, Rym
  • Chiaramonte, Laura
  • Cucinelli, Doriana
  • Migliavacca, Milena

Abstract

This paper firstly investigates the impact of digitalisation on bank efficiency and then analyses potential non-linearities in this relationship, as well as the possible moderating role played by bank business models, covering a sample of European banks over the period 2006–2021. Our results suggest that IT investments improve bank efficiency - more on the profit side than on the cost side – but that this interplay has an inverted U-shape, which indicates that excessive investment in IT technologies may be detrimental to both profit and cost efficiency. Moreover, the empirical findings show that the digitalisation-efficiency linkage is sensitive to the business model adopted by banks; in particular, retail-oriented banks benefit more from digitalisation compared to those that are market-oriented. The overall results, including those countries where digitalisation is overall low, are consistent across different robustness tests and model specifications. This study could be helpful in guiding a cognisant digital transition for European banks.

Suggested Citation

  • Ayadi, Rym & Chiaramonte, Laura & Cucinelli, Doriana & Migliavacca, Milena, 2025. "Digitalization and banks' efficiency: Evidence from a European analysis," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007695
    DOI: 10.1016/j.irfa.2024.103837
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    More about this item

    Keywords

    Bank digitalisation; IT investments; Bank efficiency; Bank business models;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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