Adopting artificial intelligence and bank shareholder value: evidence from Asia-Pacific region

Abstract

Artificial intelligence-based applications in Asia-Pacific banks have been dynamically occurring over the last decades, especially during the surge of the COVID-19 pandemic. However, little is found to assess the net impacts of AI use for bank shareholder value creation although the main purpose of bank management is to enrich shareholder wealth. Using the shadow cost of equity and control function approaches, we found that in general, using artificial intelligence decreases shareholders’ economic value for banks’ private shareholders because of higher capital charges after controlling for several factors. The results remain unchanged given a set of robustness checks. Meanwhile, we discovered that the impacts of artificial intelligence adoption vary across bank sizes and the impacts of the COVID-19 pandemic. Altogether, our study contributes to the framework related to shareholder value in Asia-Pacific banking by clarifying the divergence between profitability and shareholder value creation.

JEL classification: G21, N25, O33.