DIGITAL TRANSFORMATION AND EFFICIENCY: EVIDENCE FROM INDONESIAN BANKS

Recent studies suggest that digitalization does not uniformly enhance bank efficiency. A critical factor influencing this outcome is the size of the institution undergoing digital transformation (DT). Small and medium-sized commercial banks often encounter challenges such as limited financial resources and difficulty in adapting digital solutions that align with market conditions, thereby leading to DT failures. This study investigates the impact of DT on bank efficiency. Our analysis focuses on a sample of conventional Indonesian banks from 2015 to 2023. We also explore how digitalization affects the efficiency of both large and small banks. Regression analysis reveals nuanced findings. In large banks, the coefficient of DT2 does not significantly affect performance, whereas in small and medium-sized banks, it exhibits a statistically significant negative relationship. This suggests that digitalization influences bank performance non-linearly, posing different implications for banks of varying sizes. This study contributes to understanding the heterogeneous impacts of DT on bank efficiency, offering insights relevant not only to the Indonesian banking sector, but also to other emerging markets undertaking similar DT strategies.