Digital transformation and liquidity creation in commercial banks: Evidence from the Chinese banking industry

Abstract

This study investigates the impact of digital transformation on the liquidity creation among banks in China, focusing on 127 commercial banks from 2010 to 2021. The research is driven by the observed decline in the real economy function of China’s financial services in recent years. To analyze this trend, the study employs a panel fixed effect model and an intermediary effect test model. The findings indicate that the implementation of digital transformation in the banking sector resulted in a significant enhancement in liquidity generation. The intermediary transmission pathways through which digital transformation influences liquidity creation include optimization of loan loss provision, enhancement of risk tolerance, and mitigating financial disintermediation. Furthermore, the research indicates that the relationship between digital transformation and liquidity generation varies across banks operating in different contexts.