DIGITAL TRANSFORMATION IN BANKING: FINTECH’S ROLE IN SHAPING PROFITABILITY AND RISK MANAGEMENT IN CHINA

Abstract

This thesis investigates the impact of financial technology (FinTech) development on the profitability and risk management capacity of Chinese financial institutions over the period 2001–2022. Using a balanced panel dataset of 57 listed financial enterprises from the Shanghai and Shenzhen Stock Exchanges, the research examines how FinTech adoption measured by the logarithmic frequency of technology-related terms in corporate annual reports affects key financial performance indicators. Return on Assets (ROA) is employed as a measure of profitability, while the liquidity ratio serves as a proxy for risk management ability. The empirical analysis reveals that FinTech adoption exerts a dual effect on financial institutions. On one hand, technological innovation enhances liquidity management through improved forecasting, data analysis, and transaction efficiency enabled by big data, cloud computing, and blockchain technologies. On the other hand, heavy investment costs, rapid technological depreciation, and intensified competition can temporarily suppress profitability (ROA). By incorporating control variables such as leverage, cash flow, receivables, and inventory ratios, the study provides a comprehensive understanding of how FinTech reshapes both the efficiency and stability of financial institutions. Overall, the findings suggest that while FinTech fosters innovation and improves liquidity resilience, sustainable profitability depends on the strategic and balanced integration of digital technologies into banking operations.