Does IT investment improve bank performance? Evidence from Europe
This paper investigates whether investment in Information Technology (IT), hardware, software and other IT services influences the performance of banks. Using a sample of 737 European banks over the period 1993-2000 we analyse whether IT investment is reflected in improved performance (measured using both standard accounting ratios and cost and alternative product efficiency measures). Despite banks being major investors in IT we found little relationship between total IT investment and improved bank profictability or efficiency indicating the existence of a profictability paradox. However, the impact of different types of IT investment (hardware, software and services) on banks' performance is heterogeneous. Investment in IT services from external providers (consulting services, implementation services, training and education, support services) appears to have a positive influence on accounting products and product efficiency, while the acquisition of hardware and software seems to reduce banks' performance.
|Date of creation:||Oct 2006|
|Date of revision:||Dec 2009|
|Publication status:||Published in Journal of Banking and Finance, 31 (2007) 2205â€“2230|
|Contact details of provider:|| Postal: Via Crescimbeni, 20 -62100 Macerata|
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