Bank Digital Transformation and Enterprise Innovation—Evidence from China

Abstract

With the rapid advancement of digital technology, the banking industry has embarked on a journey of digital transformation. While existing literature primarily examines how these changes impact the banks themselves, our study focuses on a relatively unexplored aspect: the direct influence of bank digital transformation on the performance and behavior of borrowing enterprises. The research objective of this study is to explore the influence of bank digital transformation on the innovation performance of borrowing enterprises and the underlying mechanisms. Leveraging data from Chinese listed companies and commercial banks, we find a positive effect of bank digital transformation on enterprise innovation output as measured by firms’ patent applications. The findings remain robust across alternative model specifications, controls for regional digital economy development levels, and bank financial performance, as well as alternative measures of bank digital transformation. Mechanism tests show that bank digital transformation contributes to corporate innovation by alleviating corporate financial constraints and improving corporate governance. Further research demonstrates that bank digital transformation also helps promote corporate innovation efficiency as measured by the proportion of patent output to total R&D input and corporate innovation output as measured by firms’ invention patent applications and patent grants. Additionally, borrowing firms’ own digital transformations may substitute for bank digital transformation in their effect on innovations.