Exploring how digitalization influences incumbents in financial services: The role of entrepreneurial orientation, firm assets, and organizational legitimacy

The performance implications of digitalization among incumbents in the financial services industry are largely under investigated. To fill this gap, this study adopts the perspective of inertia and explores how the interaction of digitalization with entrepreneurial orientation, firm assets, and organizational legitimacy influences the performance of incumbents in the financial services industry. Using panel data covering listed banks in China during 2007–2019, we find that while digitalization alone does not improve incumbents' performance, the interaction between digitalization and entrepreneurial orientation can contribute to performance as entrepreneurial orientation strengthens. When firm assets are large, digitalization does not contribute to performance, but it does contribute when firm assets are relatively small. The interaction between digitalization and organizational legitimacy undermines incumbents' performance as organizational legitimacy increases. By bridging the entrepreneurship and legitimacy literature using the perspective of inertia, this study identifies the contingency factors affecting the performance implications of the digitalization of financial services industry incumbents, suggesting that they can achieve benefits from digitalization through reductions in inertia.