Impact Of Information Technology Investment On Performance Of Commercial Banks In Ethiopia

Banking in Ethiopia has undergone remarkable changes since 1991 following the change ofrngovernment. The era of armchair banking has gone. It has become a different ball game in termsrnof competition and its inherent strategies. This transition eventually brings the Ethiopian banks tornbe in need of adopting different technologies.rnThe main aim of this study is to assess the impact of Investment in Information technology onrnperformance of commercial Banks in Ethiopia. In order to fulfill the stated objective a mixedrnapproach with an explanatory research design is used. To this end, the researcher relied onrnconsecutive ten years Annual Audited Financial Report and other relevant n documents ofrnselected eight Commercial Banks in Ethiopia using a purposive sampling method for the periodrn2006 – 2015.rnThe study employed a multivariate regression model using Return on Asset (ROA), as arndependent variable for measuring the financial performance of the selected Banks and sixrnindependent explanatory variables of which three IT investment variables ( hardware, software,rnand IT service) three control variables ( employee efficiency, market concentration, andrninflation).rnBased on a balanced panel constructed ordinary least squares (OLS) and fixed effects, the studyrnfinds that Investment on IT services has a significant and positive impact but investment onrnhardware and investment on software have negative and significant impact which is inconsistentrnwith the researcher’s expectation. The remaining variable, employee efficiency had negative andrninsignificant effect on performance, similarly market concentration has positive insignificantrneffect and inflation positive and significant effect. The overall results revealed that IT investmentrnhave negative significant impact on the financial performance of commercial Banks in Ethiopia.rnHence, based on the findings of the study the researcher concluded that, the negative significantrnrelation between IT investment and financial performance is consistent with the productivityrnparadox theory for commercial banks in Ethiopia.rnFinally, as indicated in the scope and limitation section this study was only confined to the threernIT investment variables . Hence, the study could be further enhanced by including specificrnvariables .rnKeyrnwords:rnITrninvestment,rnCommercial,rnixrnBankrnperformance,rnPanel,rnEthiopia.

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