Capital Investment Decisions on Information Technology and its Impact on the Performance of Private Commercial Banks in Ethiopia

Rahel Afework
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
more » ... mmercial 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
doi:10.20372/nadre/6615 fatcat:ws5seubtkfbdriymfh4ygsn2be