Can Digital Finance Contribute to the Promotion of Financial Sustainability? A Financial Efficiency Perspective

Abstract

The research first summarizes the theoretical mechanism of digital finance to improve financial efficiency and sustainability; then, it proposes three hypotheses. After that, a DEA-BCC model and a super-efficiency DEA model are constructed to estimate a series of financial efficiency levels in 31 Chinese provinces. Utilizing the estimated financial efficiency values, this paper further tests each of the three hypotheses using both a random effects model controlling for cross-sectional correlation problems and an LSDV model, respectively. The findings show that (i) technological advance is the main driver of financial efficiency improvement in each region in China, while the role of scale effect in improving financial efficiency is weakening; (ii) the development of digital finance does significantly contribute to the improvement of regional financial efficiency; and (iii) the increase in both the breadth of coverage and depth of adoption of digital finance are core driving forces for the promotion of financial efficiency, with the breadth of digital financial coverage a stronger positive effect. Hence, this study can provide an important reference for policymakers and financial institutions to better understand the relationship amongst digital finance, financial efficiency, and sustainability as well as achieve sustainable financial inclusion.

Can Digitalization Foster Sustainable Financial Inclusion? Opportunities for Both Banks and Vulnerable Groups

“…We exploit a nonlinear attempt, heterogeneous estimation, as well as the supplementary variable and instrument variable methods, and we explore two underlying incentive mechanisms of profit driven and risk aversion to make the results more convincing. The positive results of digital-based financial inclusion are consistent with most of the research [13,15], especially in developing countries [60,61]. The nonlinear attempt indicates that the digital externality and saturation effects [36,47] are inevitable but can be offset by continuous updates in data resources.…”

“…In addition to these similar results, the effects of varying coefficient estimation in Table 6 show that large commercial banks have a smaller slope to other types of banks as well. In addition, we use single individual fixed effects to estimate the model in column (15). By comparing the models with and without time fixed effects, the result indicates that the effects of digitalization on sustainable financial inclusion are much larger when the time effect is controlled.…”

“…There are a large number of relevant studies focusing on the financial contribution of digitalization. For example, digitalization has positive impacts on reducing agency or transaction costs [4,[7][8][9][10][11], enhancing financial access and inclusion [12,13] and improving the performance of both the financial sector and inclusive sector [8,[14][15][16]. However, few studies refer to the sustainability of financial inclusion, especially in banks.…”

Digital Finance, Environmental Regulation, and Green Technology Innovation: An Empirical Study of 278 Cities in China

“…Digital finance can increase the possibility of obtaining financing through a variety of ways, promote R&D investment, and strengthen green technology innovation so as to achieve high-quality economic development [42,43]. On the one hand, digital finance absorbs investors that are "large, small and scattered" in the market, that is, the long tail group [44,45], which has more financial resources and can effectively broaden supply channels. Due to technical limitations and high service costs, traditional financial markets cannot effectively absorb these investors [46].…”

Digital finance and regional systemic financial risk forecasting

“…However, traditional financial regulation and operation mode, etc., are greatly challenged by digital finance, and the lag of regulation and disorderly development will lead to certain negative effects of digital financial development on the social economy [5][6]. In recent years, risks in the digital financial industry have occurred frequently, especially the large-scale defaults, runaways, and collapses of online lending platforms, which have brought great risks to the healthy development of the entire financial industry and raised the possibility of systemic financial risks caused by the development of digital finance [7][8][9].…”