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Examining the Contribution of Information Technology Toward Productivity and Profitability in U.S. Retail Banking


  • Baba Prasad
  • Patrick T. Harker


There has been much debate on whether or not the investment in Information Technology (IT) provides improvements in productivity and business efficiency. Several studies both at the industry-level and at the firm-level have contributed differing understandings of this phenomenon. Of late, however, firm-level studies, primarily in the manufacturing sector, have shown that there are significant positive contributions from IT investments toward productivity. This study examines the effect of IT investment on both productivity and profitability in the retail banking sector. Using data collected through a major study of retail banking institutions in the United States, this paper concludes that additional investment in IT capital may have no real benefits and may be more of a strategic necessity to stay even with the competition. However, the results indicate that there are substantially high returns to increase in investment in IT labor, and that retail banks need to shift their emphasis in IT investment from capital to labor.

Suggested Citation

  • Baba Prasad & Patrick T. Harker, 1997. "Examining the Contribution of Information Technology Toward Productivity and Profitability in U.S. Retail Banking," Center for Financial Institutions Working Papers 97-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:97-09

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    References listed on IDEAS

    1. Catherine J. Morrison, 2000. "Assessing The Productivity Of Information Technology Equipment In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 471-481, August.
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    7. Mester, Loretta J, 1987. " A Multiproduct Cost Study of Savings and Loans," Journal of Finance, American Finance Association, vol. 42(2), pages 423-445, June.
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    Cited by:

    1. Gervais Thenet, 2006. "Une Validation Des Temps Standards D'Operation Dans Le Secteur Des Services," Post-Print halshs-00548049, HAL.
    2. Martín-Oliver, Alfredo & Salas-Fumás, Vicente, 2008. "The output and profit contribution of information technology and advertising investments in banks," Journal of Financial Intermediation, Elsevier, vol. 17(2), pages 229-255, April.
    3. Philipp Köllinger, 2005. "Why IT Matters: An Empirical Study of E-Business Usage, Innovation, and Firm Performance," Discussion Papers of DIW Berlin 495, DIW Berlin, German Institute for Economic Research.
    4. Ngwenyama, Ojelanki & Guergachi, Aziz & McLaren, Tim, 2007. "Using the learning curve to maximize IT productivity: A decision analysis model for timing software upgrades," International Journal of Production Economics, Elsevier, vol. 105(2), pages 524-535, February.
    5. Sarv Devaraj & Rajiv Kohli, 2003. "Performance Impacts of Information Technology: Is Actual Usage the Missing Link?," Management Science, INFORMS, vol. 49(3), pages 273-289, March.
    6. Carmen Galve Gorriz & Ana Gargallo Castel, 2004. "Impacto de las tecnologías de la información en la productividad de las empresas españolas," Documentos de Trabajo dt2004-05, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    7. Abdur Chowdhury, 2003. "Information technology and productivity payoff in the banking industry: evidence from the emerging markets," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 693-708.
    8. Martín-Oliver, Alfredo & Ruano, Sonia & Salas-Fumás, Vicente, 2013. "Why high productivity growth of banks preceded the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 688-712.
    9. Stiroh, Kevin J., 2000. "How did bank holding companies prosper in the 1990s?," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1703-1745, November.
    10. Ann P. Bartel, 2000. "Human Resource Management and Performance in the Service Sector: The Case of Bank Branches," NBER Working Papers 7467, National Bureau of Economic Research, Inc.

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