Spending on Distribution Information and Communication Technologies and Cost-Effective Operation in Banks

Spending on Distribution Information and Communication Technologies and Cost-Effective Operation in Banks

Purpose: Many concerns have appeared in banking sector in the digital era and one of them is that technology development will increase operation costs of banks. Motivated by this issue, our study aims to explore the effect of technological and digital investments on costeffectiveness of banking operation. Research design, data and methodology: To reach a clear answer, we use the data of 12 commercial banks spanning from 2011 to 2020 in Vietnam and employ multivariate regression analysis as well as perform various robustness tests. Results: Our regression result indicates that the adverse effect of technological spending on cost-effective operation. This finding still remains unchanged when we conduct different robust tests. Also, we find that this negative impact becomes more evident in large banks than in small ones. Conclusions: The paper provides one of the most important empirical results for mangers and policy-makers in banking sphere, especially in Vietnam where regulators have been calling for continuously investing into technological innovation in banks. The evidence confirms that banks should carefully consider an increase in spending on distribution information and communication technologies when constructing business strategies related to expanding digitalization. Our research is also useful for countries having similar financial structure to Vietnam.