Digital Finance, Market Competition, and Risk-Taking: A Study of Rural Commercial Banks in China

Considering the current “Digital Finance- Commercial Bank Risks” is not clear and rarely studied for rural commercial banks. This study builds a two-way fixed effects model based on the annual data of 122 rural commercial banks from 2014-2020year in China and found that digital finance development has an “inverted U-shaped” relationship with the risk-taking of rural commercial banks. Further studies have found that market competition and risk preference for rural commercial banks have moderating and mediating effects. We have found that: (1) During the early stages, there is an increase in competition among rural commercial banks, leading them to adopt more stable operating strategies to ensure operations. which passively increases their risk-taking, thus verifying the left half of the “inverted U-shaped (2) In the future, digital finance is expected to break through an inflection point and competition will weaken. Rural commercial banks will increase their risk preferences to make up for previous profit losses. At this time, they will be better able to accurately identify risks, ultimately reducing their level of risk-taking. This verifies the right half of the “inverted U-shaped Overall, the Internal Mechanism among “Digital Finance Development, Market Competition, Risk Preferences, and Risk-Taking” has been confirmed.