The Impact of the Diffusion of a Financial Innovation on Company Performance: An Analysis of SWIFT Adoption
AbstractHow does a major financial network innovation influence firm performance? Despite much speculation we have little hard quantitative evidence about the impact of technology diffusion in financial services. In this paper we use the entire adoption history for SWIFT (the Society for Worldwide Interbank Financial Telecommunication - standards provider and messaging carrier) matched to bank-level panel data for the US, Canada and 27 European countries. Our dataset covers almost 7,000 banks (including 1,689 SWIFT adopters) between 1998 and 2005. We find that adoption appears to have large effects on profitability, but it takes several years before any positive return is discernible, consistent with the idea of significant complementarities between new technologies and firm organization. The profitability effect operates by both raising sales and decreasing operating costs and is greater for smaller firms than larger firms. Although the long-run effects are similar, US and UK banks appear to reap the benefits from adoption more quickly than their Continental European counterparts. This is consistent with the idea that the impact of information and communication technologies is stronger in the US than Europe due to lower adjustment costs.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0992.
Date of creation: Aug 2010
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
Diffusion; profitability; banks; SWIFT;
Find related papers by JEL classification:
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-EFF-2010-10-02 (Efficiency & Productivity)
- NEP-HIS-2010-10-02 (Business, Economic & Financial History)
- NEP-ICT-2010-10-02 (Information & Communication Technologies)
- NEP-INO-2010-10-02 (Innovation)
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