The impact of information technology on the banking industry

This paper analyses the effects of investment in information technologies (IT) in the banking sector using bank-level data from a panel of 68 US banks over the period 1986-2005. Although IT can improve bank's performance by reducing operational cost (supply side), it can bring in competition am...

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Published in:The Journal of the Operational Research Society 2010-02, Vol.61 (2), p.211-221
Main Authors: Ho, S J, Mallick, S K
Format: Article
Language:English
Subjects:
Applied sciences
Bank earnings
Bank markets
Banking industry
Banking services
Banks
Business and Management
Case-Oriented Paper
Case-Oriented Papers
Competition
Computer science
control theory
systems
Cost efficiency
Exact sciences and technology
Financial investments
Firm modelling
heterogenous competition
Impact analysis
Information systems. Data bases
Information technology
Inventory control, production control. Distribution
Investment banking
Management
Market share
Memory organisation. Data processing
Network effects
Operational research and scientific management
Operational research. Management science
Operations research
Operations Research/Decision Theory
Profits
Software
Studies
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cited_by cdi_FETCH-LOGICAL-c461t-3a2cae7367408144ee07f98f73f809990c5189a089b9bd2c1b6755a3e1b4695e3
cites cdi_FETCH-LOGICAL-c461t-3a2cae7367408144ee07f98f73f809990c5189a089b9bd2c1b6755a3e1b4695e3
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container_title The Journal of the Operational Research Society
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creator Ho, S J
Mallick, S K
description This paper analyses the effects of investment in information technologies (IT) in the banking sector using bank-level data from a panel of 68 US banks over the period 1986-2005. Although IT can improve bank's performance by reducing operational cost (supply side), it can bring in competition among banks in order to embrace new technology (demand side). Since most empirical studies have adopted the production function approach, it is difficult to identify which effect has dominated. In a differentiated model with network effects, this paper characterizes the conditions to identify these two effects. The results suggest that (at individual firm levels) the bank profits can decline due to adoption and diffusion of IT investment, reflecting negative network competition effects in this industry. Using panel cointegration tests, we confirm that the estimated profit equation is indeed a long-run equilibrium relation.
doi_str_mv 10.1057/jors.2008.128
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Although IT can improve bank's performance by reducing operational cost (supply side), it can bring in competition among banks in order to embrace new technology (demand side). Since most empirical studies have adopted the production function approach, it is difficult to identify which effect has dominated. In a differentiated model with network effects, this paper characterizes the conditions to identify these two effects. The results suggest that (at individual firm levels) the bank profits can decline due to adoption and diffusion of IT investment, reflecting negative network competition effects in this industry. Using panel cointegration tests, we confirm that the estimated profit equation is indeed a long-run equilibrium relation.</abstract><cop>London</cop><pub>Taylor &amp; Francis</pub><doi>10.1057/jors.2008.128</doi><tpages>11</tpages></addata></record>
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ispartof The Journal of the Operational Research Society, 2010-02, Vol.61 (2), p.211-221
issn 0160-5682
1476-9360
language eng
recordid cdi_crossref_primary_10_1057_jors_2008_128
source ABI/INFORM global; JSTOR Archival Journals and Primary Sources Collection; Taylor and Francis Science and Technology Collection
subjects Applied sciences
Bank earnings
Bank markets
Banking industry
Banking services
Banks
Business and Management
Case-Oriented Paper
Case-Oriented Papers
Competition
Computer science
control theory
systems
Cost efficiency
Exact sciences and technology
Financial investments
Firm modelling
heterogenous competition
Impact analysis
Information systems. Data bases
Information technology
Inventory control, production control. Distribution
Investment banking
Management
Market share
Memory organisation. Data processing
Network effects
Operational research and scientific management
Operational research. Management science
Operations research
Operations Research/Decision Theory
Profits
Software
Studies
title The impact of information technology on the banking industry
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