Information technology and cost and profit efficiencies in commercial banks and insurance companies: A global comparison

This research explores the significance and contribution of information technology (IT) and telecommunication investments (COM) to commercial banks and insurance companies all over the world. Because IT and COM have profoundly reshaped the landscape of international financial industries, it is particularly important to assess their contributions to financial institutions. This new technological development in the financial industry is also known as "e-finance" in the literature.; The impacts of IT and COM (e-finance technologies) on financial institutions vary from one country to another. The financial institutions in the developed countries are able to align new IT with financial management much better than their counterparts do in both newly developed and other developing countries. Therefore, the financial institutions in the developed countries may outperform their counterparts in the newly and other developing countries in terms of their operational performance as measured by cost and profit efficiencies and scope economies. No legacy systems but the most updated IT systems are usually applied in the newly developed countries; thus, the financial institutions in the newly developed countries may leapfrog over their counterparts in the developed countries. Moreover, the use of IT may spur the further integration of the international financial institutional markets across nations; and this intrigues me to test the international market integration hypothesis in the context of IT and COM.; The primary objective of this research is threefold. First, I investigate the impact of IT on the cost and profit efficiencies of the financial institutions under study. Second, I compare differences of the effect of IT on the financial institutions across a variety of countries. Finally, I test the international market's integration hypothesis, which indicates the relationship between financial markets' integration and globalization. A secondary objective is to explore the influences of other factors (e.g., scope economy, macroeconomic variables, etc.) on the cost and profit efficiencies of the financial institutions considered.; To achieve these goals, several novel methods are employed to explore how IT and COM improve the performance of commercial banks and insurance firms. I adopt the generalized stochastic frontier approach to measure the cost and profit efficiencies and scope economy for commercial banks in 51 countries and insurance firms in 24 countries. Moreover, a Tobit model is used to depict how IT and COM affect the cost and profit efficiencies of these two types of financial institutions. I further apply the multivariate analysis to test whether the international financial institutional markets are integrated.; There are four important findings addressed in this research. First, IT improves the cost and profit efficiencies of these two types of financial institutions uniformly across the developed and developing countries considered. Second, the impact of IT on the cost and profit efficiencies is more significant for commercial banks than that for insurance firms. Third, newly developed countries outperform developed countries in terms of the contribution of COM to cost and profit efficiencies. Therefore, the leapfrog phenomenon in e-finance may exist in terms of COM. Fourth, it is found that both international banking and insurance markets are not integrated. In conclusion, these findings provide several policy implications for the practitioners in commercial banks, insurance companies, IT vendors, governments, and international organizations.