Nexus between information technology investment and bank performance: The case of Jordan
-
DOIhttp://dx.doi.org/10.21511/bbs.18(1).2023.06
-
Article InfoVolume 18 2023, Issue #1, pp. 68-76
- Cited by
- 902 Views
-
468 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Bank stakeholders, such as creditors, investors, regulators, and other bank stakeholders, expect continuous performance improvement. To achieve this goal, bank managers can use information technology (IT) as a strategic resource to improve their bank’s capabilities and accordingly gain competitive advantage. In this study, the profitability and efficiency of commercial banks in Jordan are compared to investment in information technology (IT). Return on equity (ROE), return on assets (ROA), and net interest margin (NIM) are used to measure bank profitability while controlling for bank size and financial leverage. Cost efficiency is measured using the cost efficiency ratio. The study sample consists of 13 commercial banks listed on the Amman Stock Exchange between 2010 and 2021. To determine the relationship between the variables, descriptive statistics, correlation analysis, the panel least squares approach, and fixed effects multiple regression models are used. The findings show that banks, on average, spend 0.61 percent of their total assets on information technology (hardware and software). Additionally, banks that invest in IT are predicted to perform better over time, as evidenced by their increased profitability and efficiency. Small banks have more IT investment as a percentage of assets than larger banks. In comparison to highly leveraged banks, less leveraged banks typically have a greater IT investment to asset ratio (0.69%). The findings show that profitable banks (measured by ROE) invest more than 1.1% of their total assets in IT. Meanwhile, highly efficient banks also invest more in IT (0.65%) compared to less efficient banks.
Acknowledgment
We are indebted to the Middle East University (MEU) - Jordan ) for the financial support needed for this article.
- Keywords
-
JEL Classification (Paper profile tab)M15, G11, G21, G23
-
References39
-
Tables7
-
Figures0
-
- Table 1. Definition and measurements of variables
- Table 2. Performance indicators for the Jordanian banking sector, 2010–2021
- Table 3. Investment in IT software and hardware by the banking and financial sector in Jordan, 2011–2020 (JD thousand)
- Table 4. Summary statistics
- Table 5. Pearson correlation between independent and control variables
- Table 6. Effect of IT investment on measures of bank profitability
- Table 7. Effect of IT investment on bank cost efficiency
-
- Achchuthan, S., & Kajananthan, R. (2013). Corporate governance practices and working capital management efficiency: Special reference to listed manufacturing companies in Sri Lanka. International Journal of Business & Management Review, 1(1), 72-85.
- Aduda, J., & Kingoo, N. (2002). The relationship between electronic banking and financial performance among commercial banks in Kenya. Journal of Finance and Investment Analysis, 1(3), 99-118.
- Akande, O. O. (2016). Computerized Accounting System Effect on the performance of Enterpreuers in SouthWestern Nigeria. Proceedings of ISER International Conference. Birmingham, UK.
- Akhisar, I., Tunay, K. B., & Tunay, N. (2015). The effects of innovations on bank performance: The case of electronic banking services. Procedia-Social and Behavioral Sciences, 195, 369-375.
- Al Amosh, H., & Khatib, S. F. A. (2021). Ownership structure and environmental, social and governance performance disclosure: the moderating role of the board independence. Journal of Business and Socio-economic Development, 2(1), 49-66.
- Aliyu, A., & Tasmin, R. B. (2012). The impact of information and communication Technology on Banks’ Performance and Customer Service Delivery in the Banking industry. International Journal of Latest Trends Finance, Economics and Social Sciences, 2(1), 80-90.
- Balkan, B. (2021). Impacts of Digitalization on Banks and Banking. In The Impact of Artificial Intelligence on Governance, Economics and Finance, Volume I (pp. 33-50). Singapore: Springer.
- Beccalli, E. (2007). Does IT investment improve bank performance? Evidence from Europe. Journal of Banking and Finance, 31(7), 2205-2230.
- Beltrame, F., Zorzi, G., & Grassetti, L. (2022). The effect of FinTech investments on listed banks: Evidence from an Italian sample. Risk Governance and Control: Financial Markets & Institutions, 12(2), 47-55.
- Brynjolfsson, E., & Hitt, L. M. (2000). Beyond computation: Information technology, organizational transformation and business performance. Journal of Economic Perspectives, 14(4), 23-48.
- Carlson, D. S., Kacmar, K. M., & Williams, L. J. (2000). Construction and initial validation of a multidimensional measure of work-family conflict. Journal of Vocational Behavior, 56(2), 249-276.
- Desai, M., Nutalapati, V., Bansal, A., Buckles, D., Bonino, J., Olyaee, M., & Rastogi, A. (2019). Use of smartphone applications to improve quality of bowel preparation for colonoscopy: a systematic review and meta-analysis. Endoscopy International Open, 7(2), E216-E224.
- DeYoung, R., Lang, W. W., & Nolle, D. L. (2007). How the Internet affects output and performance at community banks. Journal of Banking & Finance, 31(4), 1033-1060.
- Furst, K., Lang, W. W., & Nolle, D. E. (1998). Technological innovation in banking and payments: industry trends and implications for banks. Quarterly Journal, Office of the Comptroller of the Currency, 17(3), 23.
- Furst, K., Lang, W. W., & Nolle, D. E. (2002). Internet banking. Journal of Financial Services Research, 22(1), 95-117.
- Ghose, B., & Maji, S.G. (2022). Internet banking intensity and bank profitability: evidence from emerging Indian economy. Managerial Finance, 48(11), 1607-1626.
- Ghozali, I. (2015). Aplikasi Analisis Multi Variance Dengan Program SPSS21. Baand Penerbit Universitas Diponegoro.
- Gujarati, D. (2015). Basic Econometrics (5th ed.). McGraw-Hill.
- Harelimana, J. B. (2018). The Automated Teller Machines and Profitability of Commercial Banks in Rwanda. Global Journal of Management and Business Research, 18(1).
- Hernando, I., & Nieto, M. J. (2007) Is the Internet Delivery Channel Changing Banks’ Performance? The Case of Spanish Banks. Journal of Banking & Finance, 31(4), 1083-1099.
- Islam, S., Kabir, M. R., Dovash, R. H., Nafee, S. E., & Saha, S. (2019). Impact of online banking adoption on bank’s profitability: Evidence from Bangladesh. European Journal of Business and Management Research, 4(3).
- Khrawish, H. A., & Al-Sa’di, N. M. (2011). The impact of e-banking on bank profitability: Evidence from Jordan. Middle Eastern Finance and Economics, 13(1), 142-158.
- Kozak, S. (2005). The Role of Information Technology in the Profit and Cost Efficiency Improvements of the Banking Sector. Journal of Academy of Business and Economics.
- Kwateng, O. K., Agyei, J., & Amanor, K. (2019). Examining the efficiency of IT applications and bank performance. Industrial Management & Data Systems, 119(9), 2072-2090.
- Le, T. D., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65-73.
- Lee, J. Y., & Kim, D. (2013). Bank performance and its determinants in Korea. Japan and the World Economy, 27, 83-94.
- Liu, Y., Saleem, S., Shabbir, R., Shabbir, M. S., Irshad, A., & Khan, S. (2021). The relationship between corporate social responsibility and financial performance: A moderate role of fintech technology. Environmental Science and Pollution Research, 28(16), 20174-20187.
- Mashal, A. (2006). Impact of Information Technology Investment on productivity and profitability: The case of a leading Jordanian Bank. Journal of Information Technology Case and Application Research, 8(4), 25-46.
- Milne, A. (2006). What Is in It for Us? Network Effects and Bank Payment Innovation. Journal of Banking & Finance, 30(6), 1613-1630.
- Owusu Kwateng, K., Agyei, J., & Amanor, K. (2019). Examining the efficiency of IT applications and bank performance. Industrial Management & Data Systems, 119(9), 2072-2090.
- Oyewole, O. S., El-Maude, J. G., Abba, M., & Onuh M. E. (2013). Electronic payment system and economic growth: a review of transition to cashless economy in Nigeria. International Journal of Scientific and Engineering Research, 2(9), 913-918.
- Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2020). Do financial technology firms influence bank performance? Pacific-Basin Finance Journal, 62, 101210.
- Romdhane, S. B. (2021). Impact of Information Technology and Digitalization on Banking Strategy pre-COVID-19, challenges in the COVID era and post-COVID stakes. International Journal of Accounting & Finance Review, 6(2), 60-73.
- Rose, P., & Hudgins, S. (2010). Bank Management & Financial Services (8th ed.). MacGrow Hill.
- Siam, A. Z. (2006). Role of the electronic banking services on the profits of Jordanian banks. American Journal of Applied Sciences, 3(9), 1999-2004.
- Siek, M., & Sutanto, A. (2019, August). Impact analysis of fintech on banking industry. In 2019 International Conference on Information Management and Technology (ICIMTech) (Vol. 1, pp. 356-361). IEEE.
- Torki, L., Rezaei, A., & Razmi, S. (2020). The Effects of Electronic Payment Systems on the Performance of the Financial Sector in Selected Islamic Countries. International Journal of New Political Economy, 1(1), 113-121.
- Yang, S., Li, Z., Ma, Y., & Chen, X. (2018). Does Electronic Banking Really Improve Bank Performance? Evidence in China. International Journal of Economics and Finance, 10(2), 82-94.
- Youssef, R., & Qassem, A. R. (2016). The impact of electronic banking services on the financial performance of banks: An applied study on public banks in the Syrian Arab Republic. Al-Baath University Journal for Human Sciences, 37(30), 93-11. (In Arabian).