Impact of Information Technology Investment on Productivity and Profitability in One of the Leading Jordanian Banks

Abstract

There has been much debate on whether or not the investment in Information Technology (IT) provides improvements in productivity and business profitability. Several studies both at the industry level and at the firm level have offered different understandings of this phenomenon. Of late banking sector study has shown that there are substantial high return to increase in investment in Information Technology (IS) labor and that additional investment in IT capital may have no real benefits. This study examines the effect of IT investment on both productivity and profitability in one of the leading Jordanian banks, the Arab Bank by using data series analysis (1983-2002) of the Arab Bank, this paper concludes that additional investment in Information System (IS) may have insignificant impact on the productivity and profitability of the bank. However, the results indicate that there are substantial returns to the increase in investment in IT capital, and that there would be an incentive to the bank’s management to shift its emphases in IT investment from labor to capital.