Abstract

In 1980, the information technology (IT) capital as a share of capital stock was 4.1 percent for the financial services industry and 7.5 percent for all industries in the U.S. By 1991, IT's share of capital in the financial services industry had more than tripled to 15.3 percent compared to 13.8 percent for all industries (Roach 1993). The commercial banking industry spent 11.6 billion dollars on systems technology in 1988, which was almost 300 percent higher than it was in 1980 (Steiner and Teixeira 1990). In viewof the importance of IT in the FSS, the measurement of the value of IT is an important consideration for management. Unfortunately, the IT value measurement research is still in its infancy (Barua, Kriebel and Mukhopadhyay 1993). The majority of empiricalanalyses have not found any strong evidence for the impact of IT (Brynjolfsson 1993), even though a few recent studies have reported some positive findings (e.g., Brynjolfsson and Hitt 1993). In addition, the IT value research has not made much headway inthe FSS. Our assessment of the IT impact is at the product level. Since many banks organize product areas as profit centers, such an assessment would help managers make more informed decisions in terms of their IT investments. It should also be clear to an observer in the banking industry that the production processes across the different product areas are not homogeneous. The roles of IT and labor, as well as the information flows and decision tasks may vary from product to product. Hence aggregating across product lines may lead to spurious results if the IT impact is not uniform (Kauffman and Weill 1989). We focus on the trade services application in Global Wholesale Banking. We use the production function approach to estimate the impact of IT in this application. Our estimate of the output elasticity of IT is positive and statistically significant. In addition, we find that the return on investment of IT (increase in dollar revenue per dollar spent in IT) is about 100% per year, holding labor input constant. Our study provides one direct evidence that IT has a favorable impact on productivity in the financial services sector. The organization of the paper is as follows. In Section 2, we describe the trade services area and the role of IT in this business process. In Section 3, we present our results. We offer some concluding remarks in Section 4

Download

Share

COinS