Impacts Of Information Technology Investment On Performance Of Commercial Bank

Nowadays, information technology is more and more widely used in banking sector. As a result, IT investment composed a large part of the operating costs of commercial banks, which fundamentally changes bank’s cost structure. Therefore whether IT investment will benefit commercial banks or not, and how the influence takes place, has become an important topic of commercial banks to consider. In the late 20th century, lots of scholars analyzed this issue from different angles. Many of them came to different conclusions. However, most studies were focused on one nation or region. But in recent years, when commercial banks becoming more globalised, IT and other back-office services have a concentration tend, such as IT investments may be concentrated in one country, but the profit is gained from multiple countries. If the analysis is limited to one country, it will be difficult to draw accurate conclusions. So in this article, I try to study multinational commercial banks from global perspective.Firstly, discuss relative theories about the effect of IT investment. Base on Short-term production function, IT can be defined as an independent production factor. Banks can achieve maximal benefit when IT investment and other factors compose an optimal combination. According complementary theory, there are a lot of complementary factors with IT investment. IT investment can obtain desired effect only when these complementary factors are used properly. And it is believed that IT investment affects banks’ benefit with time lag due to the characteristics of itself, which causes long payback periods. One of the goals of IT investment management is to shorten this time lag, to improve the utilization of funds.Secondly, analysis is carried out on how IT investment impact bank financial indicators including revenues, costs and total assets across front, mid, and back office organizations of banks, then on return on assets (ROA) and return on equity (ROE) by comprehensive analysis. At the end, I generate the hypothesis that IT investment has positive effect on ROA, ROE and total assets.In the empirical part, by expanding data of thirteen multinational commercial banks from 2001 to 2012 and other market data, panel data regression analysis reveals the correlation in IT investment with financial indicators of banks. According to the analysis, IT investment has a significant positive relationship on ROA, and its influence seems most perceivable in the second year after investment. But IT investment does not seem to have a significant relationship with ROE.Finally, reference significance of IT investment of China’s commercial banks. Overall, IT investment benefits the bank. But attention should be paid to the investment ratio of hardware, software and IT services, to the management and improvement of the complementary factors, and enhancing banks’ overall competitiveness by constructing high-effective team and advanced corporate culture.