Impact of Information Technology Investment on Productivity and Profitability: The Case of a Leading Jordanian Bank

Over the past few years, there has been much debate as to whether or not investment in Information Technology (IT) improves productivity and business profitability. Studies at both the industry and firm levels have provided varying answers to this question and different insights into the causes of productivity fluctuation. Recent research into the banking sector has shown that the substantially high returns achieved by most banks are largely due to an increase in their investment in Information Systems (IS) labor, while additional investment in IT capital may have no real benefits. This study examines the effect of IT investment on productivity and profitability by analyzing data from the Arab Bank, one of the leading banks in Jordan, during the period 1985 to 2004. The results indicate that there are substantial returns due to an increase in investment in IT capital, a fact which incentivizes the bank’s management to shift its emphasis in IT investment from labor to capital.