Digital Transformation and Bank Profitability in Indonesia: The Role of Firm Size as a Moderating Variable

This study investigates the effect of digital transformation on bank profitability in Indonesia, with firm size examined as a moderating variable. Specifically, it assesses whether digital transformation enhances financial performance and whether larger banks are better positioned to benefit from digital initiatives. Using a quantitative research design, the study analyzes panel data from 41 banks operating in Indonesia. A fixed-effects regression model is employed to estimate the direct effect of digital transformation on profitability, measured by return on assets (ROA) and return on equity (ROE), as well as the moderating effect of firm size. The results show that digital transformation has a positive and statistically significant effect on both ROA and ROE, indicating that investments in digital technologies improve banking performance. In addition, firm size positively moderates the relationship between digital transformation and profitability. Larger banks appear to derive greater benefits from digitalization due to their stronger technological infrastructure, greater financial capacity, and higher ability to invest in innovation and human capital. The study concludes that digital transformation is a key driver of bank profitability and that organizational scale enhances its effectiveness. These findings contribute to the literature on digital transformation and banking performance and offer practical implications for bank managers and regulators in formulating digital strategies that align with institutional size and capabilities.