The Moderating Effect of Bank Size, Capital Strength and Organizational Structure in Nigeria Banking Digital Innovation Intensity–Efficiency Nexus

Abstract

The rapid diffusion of digital technologies has transformed the competitive landscape of the banking industry, particularly in emerging economies where financial institutions increasingly rely on digital innovation to improve operational efficiency and service delivery. However, the efficiency outcomes of digital transformation remain inconclusive because the benefits of digital innovation may depend on internal bank characteristics. This study examines the moderating effects of bank size, capital adequacy and holding company structure in the relationship between digital innovation intensity (DII) and bank efficiency in Nigeria. Using panel data from Nigerian deposit money banks and employing robust ordinary least squares, fixed effects and median-based GMM Probit estimation techniques, the study examines both continuous and categorical efficiency outcomes. The findings reveal that digital innovation has differential effects across cost and revenue efficiency dimensions. While digital innovation initially reduces cost efficiency due to technology-related adjustment costs, it enhances revenue efficiency. Furthermore, capital adequacy, bank size and holding company structure significantly moderate the digital innovation–efficiency relationship. The interaction effects show that stronger capital positions, larger asset bases and organisational structures strengthen the ability of banks to convert digital investments into efficiency improvements. The study contributes to the digital transformation literature by demonstrating that the efficiency effect of digital innovation is conditional on institutional and structural characteristics of banks.