Information Technology Expenditure and Industry Performance: The Case of the Mexican Banking Industry

Abstract

This study examines the relationship of information technology spending to Mexican banking industry performance. Focusing on the industry unit of analysis, this project tests whether or not the productivity paradox was present in the Mexican banking industry for the period 1982 to 1992. Specifically, the project tests the correlation between the industry's information technology spending and three performance measures: profits, return on assets, and return on equity. In 1982, Mexico's banks were nationalized, and remained so up to 1992 when the Mexican government sold them back to private investors. The project's data are for the eighteen banks comprising the industry during this period. The methodology consists of longitudinal correlations of the industry consolidated data over the eleven-year period, as well as graphical analysis of time series. The findings show a positive association between IT expenditure and industry's net profits and return on assets. Hence, the productivity paradox is rejected. The results are contrary other studies at the industry level that support the productivity paradox. Findings indicate significant external effects altering IT investment patterns from economic crises and from bank ownership changes. Lastly the project goes beyond other studies in being the first one to test an entire industry for a given country, and in using an eleven-year data set.