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International Business Management
Year: 2007  |  Volume: 1  |  Issue: 4  |  Page No.: 70 - 78

Impact of Information Technology Investments on Banking: Operations in Nigeria

J.O. Adewoye    

Abstract: Businesses have continued to invest enormous sums of money on computers and related technologies expecting substantial payoff. Yet, a variety of studies present contrasting evidence as to whether these expected benefits have materialized. The rising cost of Information Technology (IT) in Nigerian banks together with higher benefit expectations associated with it have increased the need for understanding the costs and benefits relating to IT. The broad objective of this study is therefore to evaluate the impacts of IT investments on banking operations in South-Western Nigeria. Among the specific objectives of the study was the determination of the effect of IT investments on productivity and profitability. The study was carried out mainly on 10 insured pre-merger banks within the Southwestern geopolitical zone of Nigeria in which 8 were selected from Lagos Metropolis via a purposive sampling technique while 2 banks (one old generation and new generation bank) were picked from outside Lagos. The study developed a production function of the form in line with Cobb-Douglas function. This was used to determine the nature of relationship between IT investments and firm’s productivity and profitability. Data for the study were obtained essentially from the financial reports of the selected banks covering a period of 5 years. Questionnaire and scheduled interview were administered on heads of systems units and engineers in the selected banks. Two-stage least squares, ordinary least square and analysis of variance, were used to determine the nature of the relationship between: IT investments and productivity; IT investments and profitability. Results showed that while IT investments made positive contributions to gross marginal output and net marginal output (after deduction for depreciation and expenses) IT-capital made zero and perhaps negative contribution to output (-1.360 and -1071). However, investments in IT-labour were associated with a high increase in the output of the banks given its elasticity values which were 104.189144 and 2.304. However, IT investments made zero contribution to and not significant to banks’ profit. Findings indicated that IT investments have increased productivity but have not resulted in supranormal business profitability; rather, there were some evidences of small or negative impact on profitability. It was concluded that while modeling techniques used need to be improved, these results were consistent with economic theory.

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