The impact of the diffusion of a financial innovation on company performance: an analysis of SWIFT adoption

Susan V. Scott and Markos Zachariadis

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: How does a major financial network innovation influence firm performance? Despite muchspeculation we have little hard quantitative evidence about the impact of technology diffusionin financial services. In this paper we use the entire adoption history for SWIFT (the Societyfor Worldwide Interbank Financial Telecommunication - standards provider and messagingcarrier) matched to bank-level panel data for the US, Canada and 27 European countries. Ourdataset covers almost 7,000 banks (including 1,689 SWIFT adopters) between 1998 and2005. We find that adoption appears to have large effects on profitability, but it takes severalyears before any positive return is discernible, consistent with the idea of significantcomplementarities between new technologies and firm organization. The profitability effectoperates by both raising sales and decreasing operating costs and is greater for smaller firmsthan larger firms. Although the long-run effects are similar, US and UK banks appear to reapthe benefits from adoption more quickly than their Continental European counterparts. This isconsistent with the idea that the impact of information and communication technologies isstronger in the US than Europe due to lower adjustment costs.

Keywords: Diffusion; profitability; banks; SWIFT (search for similar items in EconPapers)
JEL-codes: N20 O33 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-08
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