Atlantis Press Paper Details: Does Information Technology Always Help? Theory and Evidence from Taiwan's Banking Industry

Information technology (IT) has been extensively adopted in banking industries. The reasons for this massive adoption of IT are mainly twofold: for individual banks, IT can reduce banks’ operational costs (the cost advantage), and facilitate transactions among customers within the same network (the network effect). Thus it seems perfectly safe to argue that the introduction of IT service can enhance profits in the banking industry. This point of view, however, is not commonly shared by empirical studies. This inconsistency in empirical results motivates us to contemplate IT’s influence to the whole industry, rather than to the individual banks. It would be appealing to ask: When all banks in the industry have the same access to this cost-saving technology, will the cost advantage from adopting IT vanishes due to competition? Will the presence of multiple networks bring determinative benefits to each bank in the industry? The purpose of our paper is to provide the answers by investigating the equilibrium in a differentiated product model with network effects, and identify factors affecting each effect of IT. Then the testable results are examined empirically with the data from the banking industry in Taiwan, covering 47 domestic commercial banks from 1991 to 2004.

		back to author index

title:		Does Information Technology Always Help? Theory and Evidence from Taiwan's Banking Industry
publication:		JCIS-2006 Proceedings
part of series:		Advances in Intelligent Systems Research
ISBN:		978-90-78677-01-7
ISSN:		1951-6851
DOI:		doi:10.2991/jcis.2006.147 (how to use a DOI)
author(s):		Hsieh Meng-Fen, Shirley J. Ho
publication date:		October 2006
keywords:		Information Technology, Networks, Product Differentiation
abstract:		Information technology (IT) has been extensively adopted in banking industries. The reasons for this massive adoption of IT are mainly twofold: for individual banks, IT can reduce banks’ operational costs (the cost advantage), and facilitate transactions among customers within the same network (the network effect). Thus it seems perfectly safe to argue that the introduction of IT service can enhance profits in the banking industry. This point of view, however, is not commonly shared by empirical studies. This inconsistency in empirical results motivates us to contemplate IT’s influence to the whole industry, rather than to the individual banks. It would be appealing to ask: When all banks in the industry have the same access to this cost-saving technology, will the cost advantage from adopting IT vanishes due to competition? Will the presence of multiple networks bring determinative benefits to each bank in the industry? The purpose of our paper is to provide the answers by investigating the equilibrium in a differentiated product model with network effects, and identify factors affecting each effect of IT. Then the testable results are examined empirically with the data from the banking industry in Taiwan, covering 47 domestic commercial banks from 1991 to 2004.
copyright:		© Atlantis Press. This article is distributed under the terms of the Creative Commons Attribution License, which permits non-commercial use, distribution and reproduction in any medium, provided the original work is properly cited.
full text:		JCIS06-CIEF-185.pdf (3232 K)