Does digital transformation exacerbate systemic financial risks in banks? Evidence from listed commercial banks in China

Digital transformation has become an indispensable path for commercial banks to enhance their core competitiveness and achieve sustainable development. However, whether it may exacerbate systemic financial risks while playing a positive role in improving quality and efficiency still needs to be explored in depth. This study systematically investigates the impact of digital transformation on systemic financial risks in banks. Theoretically, this study extends the bank moral hazard model to derive the influence mechanisms, asymmetric characteristics, and role of external governance. Empirically, using microdata from Chinese listed commercial banks from 2010 to 2021, this study examines the overall effect, mediating effect, heterogeneous effect, and external moderating effect. The study finds that digital transformation exacerbates systemic financial risks in banks, with more pronounced effects observed in banks characterized by larger asset scales, stronger risk-taking propensity, and more active shadow banking operations. Mechanism analysis shows that digital transformation primarily exacerbates systemic financial risks by expanding interbank business scale and intensifying executive earnings management incentives. Pathway analysis indicates that business and management digital transformation are the main drivers of heightened systemic risks, while strategic digital transformation plays a relatively limited role. Further analysis reveals that strengthening external financial regulation and improving internal control quality can effectively mitigate systemic financial risks arising during digital transformation, with external financial regulation exerting long-term effects. This study not only provides a theoretical foundation for steadily advancing digital transformation but also offers valuable policy implications for preventing and mitigating systemic financial risks.