Valuation Implication Of Information Technology Expenditures In The Banking Industry

Information technology (IT) expenditure has been regarded as critical in maintaining the competitiveness in the banking industry. However, existing literatures fail to document consistent evidence on the positive effect of IT expenditures on banks' productivity measures. This study is among the few that explore the valuation implication of IT expenditures based on U.S. banks. By utilizing the Ohlson (1995) model, our results indicate that: (1) IT expenditures are significantly and positively related to market values, suggesting that they are value-relevant; (2) IT intensity has positive impacts on earnings' multipliers (i.e., the persistence of earnings). Overall, this paper contributes to the literature by demonstrating the value relevance of IT expenditures for banks, an issue that few prior studies have addressed. Additionally, the quality of the management's decision-making is enhanced by ascertaining the critical role of IT expenditures in improving the earnings' persistence.