Digital Finance and Dynamic Adjustment of Banks——Evidence from Bank Branch Establishment and Closure

Using the unique dataset of nationwide commercial banks establishing and closing branches at the county level, this paper finds that the development of digital finance has a significant impact on the dynamic adjustment of banks. Digital finance raises the likelihood of bank branch establishment by stimulating the demand of small and micro enterprises for financial services in counties, and raises the likelihood of bank branch closure by substituting traditional financial services. The results are robust to the replacement of key variables, adjustments in the sample structure, and the use of different instrumental variables to address endogeneity. In areas with weak financial services, digital finance attracts the establishment of branches, while in areas with better financial services, digital finance gives rise to the closure of branches, which improves the regional distribution of financial service supply to a certain extent. Furthermore, based on the dynamic decomposition of the impact of digital finance, this paper finds that the dynamic adjustment of bank branches helps to improve the business performance of commercial banks. Specifically, state-owned and shareholding banks tend to establish new branches, while foreign banks tend to close branches.