Capital Investment Decisions on Information Technology and its Impact on the Performance of Private Commercial Banks in Ethiopia
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Date
2016-03
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Addis Ababa University
Abstract
Over the years various studies have been made on the relation between technological investments
and the performance of commercial banks and contradicting results were observed among
researches. The purpose this study is to evaluate capital investment decisions on information
technology and its impact on the performance of private commercial banks in Ethiopia. In order
to achieve this objective mixed research approach with qualitative and quantitative methods is
used on panel data of 6 private commercial banks for period of ten years starting from 2005 to
2014. The relation between dependent and independent variables is analyzed using multiple
regression model by taking banks profitability measure ROA as dependent variable and IT capital,
labor, capitalization, market concentration, and inflation as independent variables using OLS
random effect model on Eviews 8. From the study result, except for IT capital the rest of
explanatory variables show statistically significant impact on the ROA. The main variable shows
there is positive relation between banks IT investment and profitability but the degree of impact
measured as statistically insignificant. It is also observed that private commercial banks in Ethiopia
has low experience of evaluating information technology investments before and after investment
is made. In general the research concluded that banks will have better future with more
technological advancements, if they are able to make sound information technology related
investments with good management and IT governance system.
Key words: IT capital, commercial banks performance, IT impact on performance
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Keywords
IT capital, Commercial banks performance, IT impact on performance