AI for FI governance: Panacea or poison?

In today’s global environment, technological advances, including artificial intelligence (AI), have reformed the financial sector. Even so, it is rarely empirically documented that AI adoption also plays a role in promoting better governance of financial institutions (FIs). This research seeks to identify how AI adoption impacts FI governance. The data used are patent data based on the Center for Security and Emerging Technology (CSET) in the FI sector from 20 countries to measure AI adoption from 2014 to 2022. Meanwhile, we collect unbalanced governance performance data from the London Stock Exchange Group (LSEG) database. We observe that AI has a positive impact on FI governance. AI offers benefits in various aspects, including more effective communication between stakeholders, increased transparency, improved risk identification, and enhanced data security. We further analyzed the three governance pillars (CSR, Management, and Shareholders) and found that only the management pillar shows an impact. Further tests confirm that this influence persists in FIs with high profitability, mature companies, developed countries, and with strong financial globalization, especially in the US. Our study highlights the critical role of AI adoption in the FI sector and emphasizes financial resource factors and supporting ecosystems in improving governance. Therefore, regulators or policymakers need to support the adoption of AI through appropriate policies, building a related investment climate, and finding solutions to related challenges