IDEAS home Printed from https://ideas.repec.org/a/spr/jknowl/v14y2023i3d10.1007_s13132-022-00992-1.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13132-022-00992-1
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13132-022-00992-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," The World Bank Economic Review, World Bank, vol. 13(2), pages 379-408, May.
    2. Sapci, Ayse & Miles, Bradley, 2019. "Bank size, returns to scale, and cost efficiency," Journal of Economics and Business, Elsevier, vol. 105(C).
    3. Scott, Susan V. & Van Reenen, John & Zachariadis, Markos, 2017. "The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services," Research Policy, Elsevier, vol. 46(5), pages 984-1004.
    4. Distinguin, Isabelle & Roulet, Caroline & Tarazi, Amine, 2013. "Bank regulatory capital and liquidity: Evidence from US and European publicly traded banks," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3295-3317.
    5. Simplice A. Asongu, 2018. "Conditional Determinants of Mobile Phones Penetration and Mobile Banking in Sub-Saharan Africa," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(1), pages 81-135, March.
    6. Dadoukis, Aristeidis & Fiaschetti, Maurizio & Fusi, Giulia, 2021. "IT adoption and bank performance during the Covid-19 pandemic," Economics Letters, Elsevier, vol. 204(C).
    7. Dong, Jichang & Yin, Lijun & Liu, Xiaoting & Hu, Meiting & Li, Xiuting & Liu, Lei, 2020. "Impact of internet finance on the performance of commercial banks in China," International Review of Financial Analysis, Elsevier, vol. 72(C).
    8. Brian L. Dos Santos & Ken Peffers, 1995. "Rewards to Investors in Innovative Information Technology Applications: First Movers and Early Followers in ATMs," Organization Science, INFORMS, vol. 6(3), pages 241-259, June.
    9. Hernando, Ignacio & Nieto, Maria J., 2007. "Is the Internet delivery channel changing banks' performance? The case of Spanish banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1083-1099, April.
    10. Gang Kou & Özlem Olgu Akdeniz & Hasan Dinçer & Serhat Yüksel, 2021. "Fintech investments in European banks: a hybrid IT2 fuzzy multidimensional decision-making approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-28, December.
    11. Fadzlan Sufian & Muzafar Shah Habibullah, 2009. "Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 207-217, April.
    12. Serge Darolles, 2016. "The rise of FinTechs and their regulation," Post-Print hal-04010169, HAL.
    13. Sheng, Tianxiang, 2021. "The effect of fintech on banks’ credit provision to SMEs: Evidence from China," Finance Research Letters, Elsevier, vol. 39(C).
    14. José María Liberti & Mitchell A Petersen, 2019. "Information: Hard and Soft," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 8(1), pages 1-41.
    15. Francesco Campanella & Maria Rosaria Peruta & Manlio Giudice, 2017. "The Effects of Technological Innovation on the Banking Sector," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(1), pages 356-368, March.
    16. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    18. Wai Ho Leong & Brian Dollery, 2004. "The Productive Efficiency Of Singapore Banks: An Application And Extension Of The Barret Al.(1999) Approach," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 49(02), pages 273-290.
    19. Timothy H. Hannan & John M. McDowell, 1984. "The Determinants of Technology Adoption: The Case of the Banking Firm," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 328-335, Autumn.
    20. Cenni, Stefano & Monferrà, Stefano & Salotti, Valentina & Sangiorgi, Marco & Torluccio, Giuseppe, 2015. "Credit rationing and relationship lending. Does firm size matter?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 249-265.
    21. Tu DQ. Le & Thanh Ngo, 2020. "The determinants of bank profitability : A cross-country analysis," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 20(2), pages 65-73.
    22. Tao Song & Jianming Cai & Teresa Chahine & Le Li, 2021. "Towards Smart Cities by Internet of Things (IoT)—a Silent Revolution in China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 1-17, June.
    23. repec:hur:ijaraf:v:5:y:2015:i:1:p:35-40 is not listed on IDEAS
    24. Ferdaous Bahri & Taher Hamza, 2020. "The Impact of Market Power on Bank Risk-Taking: an Empirical Investigation," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(3), pages 1198-1233, September.
    25. Michael J. Tippins & Ravipreet S. Sohi, 2003. "IT competency and firm performance: is organizational learning a missing link?," Strategic Management Journal, Wiley Blackwell, vol. 24(8), pages 745-761, August.
    26. Ahmad Dahiyat, 2016. "Does Liquidity and Solvency Affect Banks Profitability? Evidence from Listed Banks in Jordan," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(1), pages 35-40, January.
    27. Darolles, S., 2016. "The rise of fintechs and their regulation," Financial Stability Review, Banque de France, issue 20, pages 85-92, April.
    28. Dariusz Filip & Krzysztof Jackowicz & Lukasz Kozlowski, 2017. "Influence of internet and social media presence on small, local banks’ market power," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 17(2), pages 190-214.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohammed T. Abusharbeh, 2024. "Technology-Profitability Paradox in Banking Sector: Evidence from Palestine," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14855-14873, September.
    2. Fang, Yi & Wang, Qi & Wang, Fan & Zhao, Yang, 2023. "Bank fintech, liquidity creation, and risk-taking: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    3. Phan, Dinh Hoang Bach & Narayan, Paresh Kumar & Rahman, R. Eki & Hutabarat, Akhis R., 2020. "Do financial technology firms influence bank performance?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    4. Wang, Yunsong & Jiang, Aiqing & Zhang, Songlin & Chen, Weihong, 2024. "Traditional finance, digital finance, and financial efficiency: An empirical analysis based on 19 urban agglomerations in China," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    5. Dinh Phan & Paresh Kumar Narayan & Akhis R. Hutabarat, 2018. "Do Financial Technology Firms Influence Bank Performance?," Working Papers WP/19/2018, Bank Indonesia.
    6. Lei Xu & Qian Liu & Bin Li & Chen Ma, 2022. "Fintech business and firm access to bank loans," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(4), pages 4381-4421, December.
    7. Rim Ben Abdesslem & Halim Dabbou & Mohamed Imen Gallali, 2023. "The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(4), pages 4170-4194, December.
    8. Zhao, Jinsong & Li, Xinghao & Yu, Chin-Hsien & Chen, Shi & Lee, Chi-Chuan, 2022. "Riding the FinTech innovation wave: FinTech, patents and bank performance," Journal of International Money and Finance, Elsevier, vol. 122(C).
    9. Alexandra Horobet & Magdalena Radulescu & Lucian Belascu & Sandra Maria Dita, 2021. "Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates," JRFM, MDPI, vol. 14(7), pages 1-23, July.
    10. Tu D. Q. Le & Dat T. Nguyen, 2020. "Capital Structure and Bank Profitability in Vietnam: A Quantile Regression Approach," JRFM, MDPI, vol. 13(8), pages 1-17, August.
    11. Guo, Junyan & Fang, Hanqing & Liu, Xuexin & Wang, Cizhi & Wang, Yuan, 2023. "FinTech and financing constraints of enterprises: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    12. Ambrocio, Gene & Colak, Gonul & Hasan, Iftekhar, 2022. "Commitment or constraint? The effect of loan covenants on merger and acquisition activity," Finance Research Letters, Elsevier, vol. 47(PB).
    13. Donal G. MCKILLOP & Barry QUINN, 2015. "Web Adoption By Irish Credit Unions: Performance Implications," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(3), pages 421-443, September.
    14. Yelena Popova & Olegs Cernisevs & Sergejs Popovs, 2025. "Contribution to Modern Economic Region Theory: Factor of Intangible Digital Resources," Geographies, MDPI, vol. 5(1), pages 1-19, February.
    15. Wang, Lu & Su, Zhong-qin & Fung, Hung-Gay & Jin, Hong-min & Xiao, Zuoping, 2021. "Do CEOs with academic experience add value to firms? Evidence on bank loans from Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    16. Ioan Trenca & Daniela Bozga & Daniela Zapodeanu & Mihail Ioan Cociuba, 2017. "Considerations On The Strategy Of Commercial Banks In The Context Of The Financial System Development For The Period 2005-2013," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 248-258, December.
    17. Jain Mayank & Malik Taniya & Malik Sakshi, 2023. "Deciphering Financial Health and Risk: Hierarchical Relationships and Interdependencies among Key Factors," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 162-185, October.
    18. Wilkin, Carla L. & Couchman, Paul K. & Sohal, Amrik & Zutshi, Ambika, 2016. "Exploring differences between smaller and large organizations' corporate governance of information technology," International Journal of Accounting Information Systems, Elsevier, vol. 22(C), pages 6-25.
    19. Omar Masood & Priya Darshini Pun Thapa & Olivier Levyne & Frederic Teulon & Rabeb Triki, 2014. "Does Co-integration and Causal Relationship Exist between the Non- stationary Variables for Chinese Bank’s Profitability? An Empirical Evidence," Working Papers 2014-249, Department of Research, Ipag Business School.
    20. Eduardo Levy Yeyati & Alejandro Micco & Ugo Panizza, 2004. "¿Debe el gobierno participar en la actividad bancaria? El papel de la banca propiedad del Estado y de la banca de fomento," Research Department Publications 4380, Inter-American Development Bank, Research Department.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jknowl:v:14:y:2023:i:3:d:10.1007_s13132-022-00992-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.