The Impact Of Ict Investment On Commericial Banks’ Performance: In The Ethiopian Banking Industry.
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Date
2017-05-04
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Addis Ababa University
Abstract
The market environment of the new century has undergone rapid and accelerating change,
creating more and more uncertainty and complexity to the business. Companies compete in this
fierce environment to achieve a sustainable competitive advantage, positioning itself strategically
with the available resources and capabilities through knowledge and innovation. The use of large
investments ininformation and communication technology (ICT) has been one of the solutions
found by organizations to deal with these markets and create a competitive advantage in their
business landscape. Yet, arguments rose in whether ICT can create a competitive advantage for
business in the theme called “Productivity Paradox”.Organizations are under tremendous
pressure to justify the enormous financial resources invested in ICT. The greater the competition
as a result of globalization and other market factors, it becomes even more important for
organizations to act in the best of their capabilities. The decision process for the acquisition of
ICT assets has become less objective and transparent contrary to the statements made by the
decision makers, giving rise to the paradox in the objectives achievement and consequently in
obtaining benefits. The inability to realize the true value of investments in IT creates lack of
alignment between the business and ICT’s strategic value. Consequently, it creates the
impression that ICT technologies being seen as a cost center and not as a strategic business
partner. The Ethiopian banking industry is no lessevidenced to have increasingly using ICT
investments in their day to day operations. This study examined the impact of ICT investment on
bank performance in Ethiopia for the period 2011- 2015 using the robust two-step system GMM
on a panel data of 15 banks. ROA was taken as a proxy for Bank performance. Annual report and
audit financial statement of the 15 banks over the period 2011- 2015 were used. TheResult
showed that ICT investment has produced a positive return. This finding seems to negate
Solow’s “Productivity Paradox”. Though the contribution of ICT investment in ROA seems
positive, yet the statistical insignificancy and the small coefficient seems to have an insignificant
impact on bank profitability. This insignificant impact may be due to the moderatecompetition
that exists among the banks, underutilization of technology, and mismatch between
organizational structure and banking technology and duplication of ICT resources in the banking industry
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Keywords
ICT, Bank profitability, Commercial Banks, Investment, System GMM