THE PRODUCTIVITY PARADOX AND INVESTMENTS IN IT? EVIDENCE FROM SAUDI BANKS

The study aims to examine the influence of information technology investments (IT) on the performance of Saudi banks listed on the Saudi stock market. The study utilized a panel data methodology, which contains a time series and a cross-section. Least squares regression models were utilized to assess the study's hypotheses. The study utilized a combination of performance indicators from an accounting and market perspective. The study results indicate that investments in IT as an independent variable have no influence on accounting–based profitability, that is, a productivity paradox exists. The results also indicate that these investments have a direct influence on improving cost to income ratio (CTIR) and increasing market share (MS) as dependent variables. To reveal the banks’ strategy on Investments in IT, the current study examined the influence of both CTIR and MS as independent variables on profitability indicators. The results indicated that these variables have an influence on earnings per share (EPS), indicating that the sample banks utilized IT to improve CTIR as a proxy for cost efficiency and MS which in turn contributed to improving EPS. The results showed that investors in the Saudi capital market have not relied on Investments in IT when making investment decisions, as there is no relationship between these investments and SP., that is, IT investments have no relevant value. The study’s results are beneficial for several stakeholders, including bank managers, shareholders, and market analysts, as it revealed banks’ strategies adopted for investing in IT.