Measuring the impact of investments in information technology on the financial and the market performance of banks in Saudi Arabia.
Keywords:
Market Share- Cost to Income Ratio- Return on Assets- Operational Efficiency-Return on Equity.Abstract
The study aimed to investigate the impact of investments in information technology on both accounting- based and market -based performance indicators of a sample of (8) banks registered on the Saudi stock market for the period 2015-2022. The study used return on equity, return on assets, earnings per share as proxies for bank profitability and cost to income ratio as a proxy for banks’ operational efficiency, share price as a proxy for market-based indicator and market share as a proxy for market competion. The results of least squared regression models showed that investments in information technology did not have statistically significant impacts on profitability proxies and the share price. That is, the results confirmed the existence of the productivity paradox Phenomena of investments in information technology in the case of banks in Saudi Arabia. However, the results of regression models showed that investments in information technology had statistically significant impacts on both cost to income ratio and market share variables, which in turn they had statistically significant impacts on earnings per share. That is, banks used investments in information technology to increase the market share and improve the cost structure. The study tested the validity of basic results as the study re measured investments in information technology as a percentage of total assets and results of robustness check confirmed basic results. That is, the results were insensitive to measurements of investments in information technology. The results of the study will be beneficial for bank manager and market analysts as the study revealed banks' strategy regarding investments in information technology, which represented in achieving competitive advantages, namely increasing their market share and improving their cost structure, which in turn improved earnings per share. The study urge banks to increase volumes of disclosures on investments in information technology to measure the separate impacts of investments on hardware and software on banks’ performance.
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