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Digital financial and banking competition network: Evidence from China
Kaiwei Jia1, Ying He2, Mohammad Mohsin3
1School of Business Administration, Liaoning Technical University, Huludao, China.
Frontiers in Psychology
|February 16, 2023
Summary
Digital finance reshapes banking competition, intensifying inter-bank rivalry and increasing evolution. Small and medium banks are more vulnerable to its effects, leading to homogeneous competition.
Area of Science:
- Economics
- Financial Technology
- Banking
Background:
- The rapid advancement of digital finance has intensified competition within the banking sector.
- Understanding the impact of digital finance on banking competition structures is crucial for industry governance.
Purpose of the Study:
- To analyze how digital finance influences the competitive structure among banks.
- To investigate the heterogeneous effects of digital finance on different types of banks.
- To identify the mechanisms through which digital finance impacts banking competition.
Main Methods:
- Utilized bank-corporate credit data to construct a social network model for measuring interbank competition.
- Transformed regional digital finance indices into bank-level indices using registry and license information.
- Employed Quadratic Assignment Procedure (QAP) for empirical testing of digital finance's effects.
Main Results:
- Digital finance reshapes banking competition, intensifying inter-bank involution and evolution.
- Large state-owned banks maintain central positions with stronger digital finance development.
- Small and medium-sized banks experience significant impacts on co-opetition and competitive pressure, leading to homogeneous competition.
Conclusions:
- Digital finance alters banking competition dynamics, with varying effects across bank sizes.
- Mechanisms include improved financial service inclusiveness (scale effect) and enhanced pricing and capital allocation abilities (pricing effect).
- Findings offer insights for governing banking competition and fostering new economic development patterns.
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