Has the technological investment been worth it? Assessing the aggregate efficiency of non-homogeneous bank holding companies in the digital age

• Published in: Technological forecasting & social change Vol. 178; p. 121576
• Main Authors: Cao, Ting, Cook, Wade D., Kristal, M. Murat
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01-05-2022; Elsevier Science Ltd
• Subjects: Aggregate efficiency; Bank holding companies; Bank technology; Collaboration; Companies; Data envelopment analysis; Digitalization in banking; Efficiency; Empirical analysis; Panel data; Peers; Resource allocation; Resource management; Resource-allocation model; Technological progress; Technology; Resource-allocation model; Digitalization in banking; Aggregate efficiency; Data envelopment analysis
• ISSN: 0040-1625; 1873-5509
• DOI: 10.1016/j.techfore.2022.121576

•Provide a new model to evaluate banks’ return on investment of digital.•Practical insights on technology investment, deployment, and implementation are provided.•The impact of collaborating with FinTech firms on bank performance is examined.•Nonhomogeneous banks are compared with their “true” peers.•Guidelines on resource allocation and reallocation are provided.
Using panel data from 2010 to 2016, this study investigates how well banking institutions perform in investing in digital technologies and utilizing their resources in the digital age. A conventional data envelopment (DEA) analysis model is first applied, followed by a Malmquist index analysis. Results suggest that bank holding companies (BHCs) have failed to benefit from technological progress due to inefficient resource management. As such, we propose a novel resource-allocation model to address the issues, particularly allowing non-homogeneous BHCs to be compared with their true peers and highlighting practical insights into the allocation and reallocation of shared resources. Aggregate efficiency scores are measured and then regressed against selected explanatory variables. The empirical findings indicate that BHCs should strengthen their innovation capabilities and improve their diversification levels to gain better performance in utilizing resources. The results also offer novel managerial implications for collaboration with financial technology (FinTech) firms. Specifically, the explanatory variable, partnership, is shown to have a moderating effect on the relationship between the size and aggregate efficiency of BHCs. Larger BHCs could benefit from collaborating with FinTech, while smaller BHCs appear to be better off acting alone.