The Effect of Information Technology Investment on Profitability of Selected Ethiopian Commercial Banks
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Date
2021-11
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A.A.U
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 of this study is to evaluate effects of IT Investments on profitability of selected Ethiopian commercial banks. In order to achieve this objective quantitative research methods by using secondary sources of data are applied. Panel data of thirteen (13) Ethiopian commercial banks are selected out of nineteen banks operating in Ethiopia using purposive sampling method for the period 2010 - 2019. The relation between dependent and independent variables was analyzed using multiple regression model by taking banks profitability measure ROA as dependent variable and IT Investment which is not the only determinate of profitability , Bank size, labor productivity, market share, inflation and GDP are considered other than IT as determinate factors for the study as independent variables using Random effect model. The study result showed that IT investment, bank size, labor productivity and inflation have a statistically significant impact on the ROA. The findings of this study revealed that the selected commercial banks have managed to invest a cumulative total of 27,226,381,708.00 birr and an average annual amount of 2,722,638,170.80 birr in the past ten years. The regression analysis findings of the study showed that IT investment and labor productivity have a negative relationship with profitability of commercial banks of Ethiopia. Meanwhile, bank size and inflation rate have a positive relationship with ROA of the commercial banks of Ethiopia. Market share and GDP growth does not have significant relationship with ROA of the banks. Finally, the researcher recommended that IT is not the only determinate of profitability there are also other factors which are not considered in this study liquidity, exchange rateā¦. Ethiopian commercial banks should not only be concerned about internal structures and policies, but they must consider both significant key internal environment and the macroeconomic environment together in fashioning out strategies to improve their profitability.
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IT Investment, performance & ROA