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The Effect of Financial Technology Investment Level on European Banks’ Profitability

Author

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  • Ahlem Chhaidar

    (University of Sfax)

  • Mouna Abdelhedi

    (University of Sfax)

  • Ines Abdelkafi

    (University of Sfax)

Abstract

This paper examines the dynamic relationship between fintech investments and financial performance, and it explores whether the bank size could influence the performance in the context of the digital transformation (digitization). The fully modified ordinary least squares (FMOLS) model is estimated for 23 European banks throughout the whole period ranging from 2010 to 2019 and for the two sub-periods spanning from 2010 to 2014 and from 2015 to 2019. The econometric results evince that fintech are positively and significantly related to the bank profitability, inferring that the greater the digital engagement of banks is, the higher the profitability is. Our findings provide evidence that the bank size is a moderator factor in affecting the relationship between digital investments and the profitability. Hence, larger banks benefit more from investments in the financial technology so as to improve their performance. Our study has substantial policy implications as we suggest that the increased investment in the fintech is a possible channel through which banks improve their performance, particularly when the bank size is considered large.

Suggested Citation

  • Ahlem Chhaidar & Mouna Abdelhedi & Ines Abdelkafi, 2023. "The Effect of Financial Technology Investment Level on European Banks’ Profitability," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(3), pages 2959-2981, September.
    • Handle: RePEc:spr:jknowl:v:14:y:2023:i:3:d:10.1007_s13132-022-00992-1
    DOI: 10.1007/s13132-022-00992-1
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