Journal of Operational Risk
ISSN:
1755-2710 (online)
Editor-in-chief: Marcelo Cruz
The role of banks’ digital transformation in operational risk management: evidence from China
Need to know
- Bank digital transformation significantly reduces operational risk, with strategy digitalization contributing the most to this effect.
- The operational risk reduction from banks’ digital transformation is mainly driven by traditional and financial businesses rather than nontraditional ones.
- Heterogeneity analyses show that regional banks and banks with less capital regulatory pressure benefit more from digital transformation in controlling operational risk.
- Banks’ digital transformation positively affects market value by decreasing operational risk.
Abstract
Against the dual backdrop of digital economy development and financial risk prevention and control, this paper investigates the impact of banks’ digital transformation on operational risk using panel data for Chinese listed commercial banks from 2013 to 2021. It shows that bank digital transformation and its subareas, except for management digitalization, significantly lower operational risk. This effect is stronger for regional banks and those facing less capital regulation pressure. Further, the operational risk reduction from banks’ digital transformation is mainly driven by traditional and financial businesses rather than nontraditional ones. More importantly, digitalization-induced bank operational risk mitigation enhances the market value. These findings will provide practitioners and regulators with new insights into the role of banks’ digital transformation in operational risk governance and offer useful references for other countries to decrease bank risk losses and alleviate capital pressure by digital means.
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