Firm Strategy and the Internet in American Commercial Banking

Transcription

1 Firm Strategy and the Internet in American Commercial Banking Kim Huat Goh Nanyang Technological University Robert J. Kauffman Singapore Management University May 2013 Reference: GOH, K.H., and KAUFFMAN, R.J. Firm Strategy and the Internet in American Commercial Banking. Journal of Management Informa0on Systems, 30(2) (Fall 2013), in press.

2 The Business Problem [IT] may be strategically important, not because it gives you strategic advantage, but because failing to attend to it results in strategic disadvantage. - Eric K. Clemons and Steven O. Kimbrough, U. Pennsylvania (Proc. ICIS 1986) [In 2001, banks] offering transactional Internet sites were more profitable than those that did not. This reflects the choice of profitable banks to adopt the technology, rather than profitability from Internet services." - Allen N. Berger, Economist, Board of Governors, Federal Reserve Bank (J. Money, Credit and Banking 2003)

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7 Comments: 5 hypotheses in the article; this is unnecessary Untypical of economics literature on banking IT

8 Comments: The global financial financial services industry makes a tremendous amount of high-quality data available for the study of IT-related issues This is true for financial services, investments, financial markets, ATM banking and online banking So it s a great area for empirical research on IT

9 Comments: Data are directly downloadable without permission Additional data are available from FDIC economists

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12 FSSN and ITPS Estimation Results (1) For the Dependent Variables: Transaction Cost and Deposits Revenue and Net Operating Income

13 FSSN and ITPS Estimation Results (2) For Internet Banking as a Dependent Variable and the Independent Variables: Transaction Cost and Deposits Revenue and Net Operating Income

14 Strategic Necessity Estimation

15 Strategic Advantage Estimation We implemented the Rivers and Vuong (1988) robustness check via two-stage condition maximum likelihood estimation. Our 2SCML results mirrored all the prior 2SPLS results, while ensuring efficient estimators..

16 Managerial Interpretation In , Internet banking investments associated with: a 7.3% drop in bank transaction costs a 29.3% increase in bank deposits for FDIC banks Internet banking associated with better bank performance Banks that invested in Internet banking service capabilities obtained, beyond the controls we used, an average of: 14.6% more revenue 18.1% higher net operating income Magnitude of strategic advantage benefits for investments in Internet banking eroding over time for loan distribution and deposit collection to reduce funding cost pressures Internet banking also led to increases in market demand

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18 Suggested Reading: Theory Anderson, M.C., Banker, R.D., and Ravindran, S. Value implications of investments in IT. Mgmt. Sci., 52, 9, 2006, Banker, R., and Kauffman, R. Strategic contributions of IT: An empirical study of ATM networks. In J.I. DeGross and M.H. Olson (eds.), Proc. ICIS, Minneapolis, MN, Clemons, E.K., and Kimbrough, S.O. IS, telecommunications, and their effects on industrial organization. In C. Bullen and E.A. Stohr (eds.), Proc. ICIS, San Diego, CA, Clemons, E.K., and McFarlan, F.W. Telecom: Hook up or lose out. Harvard Business Review, 64, 4, 1986, Weill, P. The relationship between investment in information technology and firm performance: A study of the valve manufacturing sector. Info. Sys. Res., 3, 4, 1992,

19 Suggested Reading: Methods Heckman, J.J. Dummy endogenous variables in a simultaneous equation system. Econometrica, 46, 4, 1978, Lee, L.F., Maddala, G.S., and Trost, R.P. Asymptotic covariance matrices of two-stage probit and tobit methods for simultaneous equation models with selectivity. Econometrica, 48, 2, 1980, Rivers, D., and Vuong, Q.H. Limited information estimators and exogeneity tests for simultaneous probit models. J. Econometrics, 39, 3, 1988,

20 Suggested Reading: Methods Berger, A.N. The economic effects of technological progress: Evidence from the banking industry. J. Money, Credit, and Banking, 35, 2,2003, DeYoung, R. The performance of internet-based business models: Evidence from the banking industry. J. Business, 78, 3, 2005, Furst, K., Lang, W., and Nolle, D. Internet banking: Developments and prospects. Paper , Office of the Comptroller of the Currency, Washington, DC, Furst, K., Lang, W., and Nolle, D. Internet banking in the United States: Landscape, prospects, and industry implications. J. Financial Transformation, 2, 2001, Furst, K., Lang, W., and Nolle, D. Internet banking. J. Financial Services Research, 22, 1, 2002,