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Bank digital transformation and liquidity mismatch: Evidence from China

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  • Hou, Xiaohui
  • Yang, Rui

Abstract

To investigate the bidirectional relation between bank digital transformation and liquidity mismatch, this paper employ the empirical methodology of panel Granger causality tests to examine the relationship between digital transformation indicators and liquidity mismatch index, employing panel vector autoregression models, as well as a panel structural vector autoregression model, employing the data of 181 Chinese commercial banks in the period before COVID-19. We find a bidirectional causality between digital transformation and the liquidity mismatch index. An increase in the degree of digital transformation in commercial banks significantly reduces the bank liquidity mismatch index; furthermore, a decrease in the degree of the bank liquidity mismatch index results in an increase in bank digital transformation. The digital transformation enhances a bank's susceptibility to liquidity stress, although a bank suffering from higher liquidity mismatch prefers to promote digital transformation. Furthermore, we find that cognitive digital transformation is the primary driving factor of the bidirectional causality relationship and the relationship between digital transformation and the liquidity mismatch index is heterogeneous for banks with various ownership types.

Suggested Citation

  • Hou, Xiaohui & Yang, Rui, 2024. "Bank digital transformation and liquidity mismatch: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 581-597.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:581-597
    DOI: 10.1016/j.iref.2024.02.050
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    More about this item

    Keywords

    Digital transformation; Liquidity mismatch; Commercial banks; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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