Nexus between information technology investment and bank performance: The case of Jordan

  • Received November 19, 2022;
    Accepted February 6, 2023;
    Published February 15, 2023
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/bbs.18(1).2023.06
  • Article Info
    Volume 18 2023, Issue #1, pp. 68-76
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This work is licensed under a Creative Commons Attribution 4.0 International License

Bank stakeholders, such as creditors, investors, regulators, and other bank stakeholders, expect continuous performance improvement. To achieve this goal, bank managers can use information technology (IT) as a strategic resource to improve their bank’s capabilities and accordingly gain competitive advantage. In this study, the profitability and efficiency of commercial banks in Jordan are compared to investment in information technology (IT). Return on equity (ROE), return on assets (ROA), and net interest margin (NIM) are used to measure bank profitability while controlling for bank size and financial leverage. Cost efficiency is measured using the cost efficiency ratio. The study sample consists of 13 commercial banks listed on the Amman Stock Exchange between 2010 and 2021. To determine the relationship between the variables, descriptive statistics, correlation analysis, the panel least squares approach, and fixed effects multiple regression models are used. The findings show that banks, on average, spend 0.61 percent of their total assets on information technology (hardware and software). Additionally, banks that invest in IT are predicted to perform better over time, as evidenced by their increased profitability and efficiency. Small banks have more IT investment as a percentage of assets than larger banks. In comparison to highly leveraged banks, less leveraged banks typically have a greater IT investment to asset ratio (0.69%). The findings show that profitable banks (measured by ROE) invest more than 1.1% of their total assets in IT. Meanwhile, highly efficient banks also invest more in IT (0.65%) compared to less efficient banks.

Acknowledgment
We are indebted to the Middle East University (MEU) - Jordan ) for the financial support needed for this article.

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    • Table 1. Definition and measurements of variables
    • Table 2. Performance indicators for the Jordanian banking sector, 2010–2021
    • Table 3. Investment in IT software and hardware by the banking and financial sector in Jordan, 2011–2020 (JD thousand)
    • Table 4. Summary statistics
    • Table 5. Pearson correlation between independent and control variables
    • Table 6. Effect of IT investment on measures of bank profitability
    • Table 7. Effect of IT investment on bank cost efficiency
    • Conceptualization
      Asma’a Al-Amarneh, Hadeel Yaseen, Anas Bani Atta, Lubna Khalaf
    • Investigation
      Asma’a Al-Amarneh, Hadeel Yaseen, Anas Bani Atta, Lubna Khalaf
    • Methodology
      Asma’a Al-Amarneh, Hadeel Yaseen, Anas Bani Atta, Lubna Khalaf
    • Writing – original draft
      Asma’a Al-Amarneh
    • Writing – review & editing
      Asma’a Al-Amarneh, Hadeel Yaseen
    • Resources
      Anas Bani Atta, Lubna Khalaf
    • Validation
      Anas Bani Atta, Lubna Khalaf
    • Visualization
      Anas Bani Atta, Lubna Khalaf