The nonlinear and threshold effects of IT investment on the banking sector of Bangladesh

Mohammad Ashraful Chowdhury, Mohammad Abdullah (), Nurun Nowshin Chowdhury Nazia () and Debarshi Roy ()
Additional contact information
Mohammad Abdullah: Universiti Sultan Zainal Abidin
Nurun Nowshin Chowdhury Nazia: Shahjalal University of Science & Technology
Debarshi Roy: Shahjalal University of Science & Technology

Economic Change and Restructuring, 2023, vol. 56, issue 6, No 20, 4253-4283

Abstract: Abstract In the modern banking industry, investment in information technology (IT) is crucial to maintain technological advances, operational efficiency, financial innovation, and security. However, the impact of IT investment on the banking sector is still in question, particularly whether it follows a linear or nonlinear relationship, and what should be the optimal level of IT investment. This study investigates the nonlinear and threshold effects of IT investment on bank profitability, stability, and efficiency. We use data from 28 Bangladeshi banks from 2015 to 2020 and use panel models, including static and dynamic models, with quadratic function and dynamic panel threshold regression for analysis. The study reveals that IT investment has a U-shaped nonlinear relationship with bank profitability and stability, indicating that an optimal level of IT investment exists for both factors. In contrast, the relationship between IT investment and bank efficiency is an inverted U-shape, suggesting that, though IT investment can lead to greater efficiency gains, excessive IT investment can become counterproductive. Dynamic threshold regression analysis indicates that the threshold point for IT investment is 15.369, 16.774, and 17.370 for bank profitability, stability, and efficiency, respectively. These findings can serve as useful benchmarks for bank management, policymakers, and regulators to determine the optimal level of IT investment that maximizes the benefits while minimizing costs.

Keywords: Bank stability; Bank performance; IT investment; Dynamic panel threshold (search for similar items in EconPapers)
JEL-codes: G21 G32 M15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10644-023-09541-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ecopln:v:56:y:2023:i:6:d:10.1007_s10644-023-09541-5

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/10644/PS2

DOI: 10.1007/s10644-023-09541-5

Access Statistics for this article

Economic Change and Restructuring is currently edited by George Hondroyiannis

More articles in Economic Change and Restructuring from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().