Impact of Information Technology Investment on Performance of Commercial Banks in Ethiopia

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Addis Ababa University


Banking in Ethiopia has undergone remarkable changes since 1991 following the change of government. The era of armchair banking has gone. It has become a different ball game in terms of competition and its inherent strategies. This transition eventually brings the Ethiopian banks to be in need of adopting different technologies. The main aim of this study is to assess the impact of Investment in Information technology on performance of commercial Banks in Ethiopia. In order to fulfill the stated objective a mixed approach with an explanatory research design is used. To this end, the researcher relied on consecutive ten years Annual Audited Financial Report and other relevant n documents of selected eight Commercial Banks in Ethiopia using a purposive sampling method for the period 2006 – 2015. The study employed a multivariate regression model using Return on Asset (ROA), as a dependent variable for measuring the financial performance of the selected Banks and six independent explanatory variables of which three IT investment variables ( hardware, software, and IT service) three control variables ( employee efficiency, market concentration, and inflation). Based on a balanced panel constructed ordinary least squares (OLS) and fixed effects, the study finds that Investment on IT services has a significant and positive impact but investment on hardware and investment on software have negative and significant impact which is inconsistent with the researcher’s expectation. The remaining variable, employee efficiency had negative and insignificant effect on performance, similarly market concentration has positive insignificant effect and inflation positive and significant effect. The overall results revealed that IT investment have negative significant impact on the financial performance of commercial Banks in Ethiopia. Hence, based on the findings of the study the researcher concluded that, the negative significant relation between IT investment and financial performance is consistent with the productivity paradox theory for commercial banks in Ethiopia. Finally, as indicated in the scope and limitation section this study was only confined to the three IT investment variables . Hence, the study could be further enhanced by including specific variables . Key words: IT investment, Commercial, ix Bank performance, Panel, Ethiopia.



IT investment; Commercial; ix bank performance; Panel; ethiopia.