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Does digital finance aggravate bank competition? Evidence from China

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  • Gao, Cuiyun
  • Wang, Qian

Abstract

The development of digital finance reshapes the competition pattern of banking. This paper uses a sample of 287 cities in China over the 2011–2019 period to analyze the effect of digital finance on bank competition. Results show that digital finance has a significant positive effect on bank competition, and it confirms the catfish effect of digital finance. The effects of coverage breadth of digital finance on bank competition is significantly positive, while the effect of digitization level index and usage depth index are not significant. This result is still valid after robustness tests. Estimation results of regional heterogeneity shows that digital finance has a significant positive effect on bank competition in the eastern and central region, and there is no effect of digital finance in the western region. The results of financial development level heterogeneity shows that digital finance creates a catfish effect in cities with developed traditional finance. Digital finance influences bank competition with deposit effect, loan effect and cooperation effect.

Suggested Citation

  • Gao, Cuiyun & Wang, Qian, 2023. "Does digital finance aggravate bank competition? Evidence from China," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001678
    DOI: 10.1016/j.ribaf.2023.102041
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    References listed on IDEAS

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    1. Peterson K. Ozili, 2018. "Impact of digital finance on financial inclusion and stability," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(4), pages 329-340, December.
    2. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    3. Malte Krueger, 2012. "Money: A Market Microstructure Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1245-1258, September.
    4. Wang, Gang-Jin & Xie, Chi & Zhao, Longfeng & Jiang, Zhi-Qiang, 2018. "Volatility connectedness in the Chinese banking system: Do state-owned commercial banks contribute more?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 205-230.
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    Cited by:

    1. Peón, David & Antelo, Manel & Sun, Yanfei, 2024. "Market competition and strategic interaction in the Spanish FinTech industry," Research in International Business and Finance, Elsevier, vol. 70(PB).
    2. Liu, Ziqiang & Feng, Qiushuo & Li, Hongyi, 2024. "Digital finance, bank competition shocks and operational efficiency of local commercial banks in Western China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Digital finance; Bank competition; Heterogeneity effect; Mediation effect;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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