The productivity paradox of information technology: The Ghanaian bank–level evidence

Abstract

AbstractThis study attempts to investigate the impact of information technology (IT) investments on efficiency among banks in Ghana. The study further tests the presence of the productivity paradox in the Ghanaian banking sector. This study employs a random effect model (REM) using 23 banks in Ghana from 2000 to 2019, thus yielding 460 observations. The study revealed that there is a significant and negative relationship between IT investments and cost to income ratio used as a surrogate for banks' efficiency. This result, therefore, suggests that investment in IT translates into banks' efficiency. The study further revealed that varied results are produced when the same relationship is tested in terms of banks' ownership structures, different minimum capital requirement regimes and listing status of banks in Ghana. The findings also suggest that while investment in technology by locally‐owned banks enhances efficiency, the introduction and changes of minimum capital requirements do not translate into banks' efficiency. The results have implications for the management of banks, governments and regulators. It shows the need for policy and investments that improve state‐of‐the‐art technology.