Digital Economy, Institutional Environment, and the Credit Risks of Commercial Banks

ABSTRACTMost emerging economies are in a transition period, and an imperfect institutional environment will lead to inefficient supervision mechanisms in the digital economy. Based on data representing the experiences of China’s listed commercial banks from 2013 to 2021, this study empirically examines the impact of the digital economy on credit risk by using a panel fixed-effect model. The findings indicate that the development of the digital economy helps to reduce credit risk faced by commercial banks. Institutional variables, such as financial supervision and the legal institutional environment, have significant mediation effects of the digital economy. By increasing the intensity of financial supervision and improving the legal institutional environment, the digital economy can reduce the credit risk faced by commercial banks. Interestingly, the effect of the digital economy on credit risk is not uniform across all banks. State-owned commercial banks benefit more from the digital economy in terms of reducing their credit risk than on non-state-owned banks. The inhibitory effect of the digital economy on the credit risk of commercial banks is significant in eastern China but not in central and western China.KEYWORDS: Digital economyfinancial supervisionlegal institutional environmentbank credit riskJEL: G20G30 Disclosure StatementNo potential conflict of interest was reported by the author(s).Correction StatementThis article has been republished with minor changes. These changes do not impact the academic content of the article.Additional informationFundingThe work was supported by the NationalNatural Science Foundation of China [grant number 72140001, 72003086].