Digital Industrial Policy and the Digital Transformation in Banking: Evidence from a Quasi-Natural Experiment in China

This paper explores the impact of digital industrial policy on the digital transformation in the banking sector. Utilizing bank-level panel data from China for the period 2012 to 2020, we construct a difference-in-differences model to estimate the policy's effects. The findings indicate that digital industrial policy significantly boosts digital transformation in banks within pilot zones, relative to those outside such zones. This effect persists even after controlling for other contemporaneous shocks and remains robust across various robustness tests. Cross-sectional analysis shows that the influence of digital industrial policy on digital transformation is stronger in banks characterized by higher risk, higher capital adequacy ratios, and lower loan concentration. Additionally, our analysis of economic consequences reveals that the digital industrial policy not only improves bank credit supply and profitability but also enhances firms' access to credit, real investment, labor employment, and production scale.