Abstract
Very little is known about how adopting Internet activities impact traditional banks. By tracing the experience of Italian commercial banks, we provide evidence and implications for banks’ use of new Internet technology and innovative banking products as they relate to performance. Using different definitions for what is considered as Internet activity and by examining alternative proxies for bank return and risk, we find a significant link between offerings of Internet banking products and bank performance. Although this link is significantly positive for bank returns, we find a negative, marginally significant, association between the adoption of Internet activities and bank risk.
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Notes
The ROA reported by the “active Internet banks” (column 2) is 1.184 and it is 1.495 by the “online trading Internet banks” (column 3). As mentioned earlier, under the definition of “active Internet group” we incorporate only those banks which have a web-presence with explicit basic intermediation services offered via Internet and are also involved in at least two of the other Internet activities described in Table 1. In doing so, we find that the number of observations in our Internet sample goes down from the previous 515 observations to 260 observations. Another Internet group considered “online trading Internet group” by considering only those Internet banks that have explicit Internet online trading facilities. Only 18 banks in the sample with a total 162 observations are involved in this group.
For the statistics on growth estimates of relevant variables, we report only the experience of Active Internet banks. We do not find that our results are significantly different if we change our definition of Internet banks to “any Internet banks” or “online trading banks.” All estimates that are not reported in the text are available on request.
Estimates of other groups are similar and are available on request.
Although not reported here, we note that the increase in ROA is dominated by the commission and fee incomes relative to the interest income from traditional lending activities.
We also estimate these ROA regressions by using the value of the independent variables in year t, i.e., the current year values. These estimates provide higher sample size, and in all cases, higher model statistics, and find that the key results associated with the adoption of Internet banking activities and bank returns reported in the text using the value of independent variables in year t − 1 are similar and therefore are not repeated.
More specifically, the parameters and the model statistics in the SUR estimate is relatively weaker than the reported results however we do not find the magnitude of the PIDUM variable to be different for the standard deviation of stock return regressions in Tables 4 and Table 5. Given the statistical significance of the variable is not significant, we decided not to elaborate the results beyond reporting it to this footnote.
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Acknowledgements
The authors are grateful to an anonymous referee and the editor Haluk Unal for valuable comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the associated institutions. Usual caveats apply. Special thanks go to Roberto Moretti, Luca De Marco and Marco Pellegrini. Without their input the authors could not have completed this project. The authors also thank Riccardo DeLisa, Roberto Malavasi, Andrea Resti, and Sandra Sizer for comments and suggestions. Hasan thanks FITD, Italy for support. All errors belong to us. The usual discaimer applies.
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Ciciretti, R., Hasan, I. & Zazzara, C. Do Internet Activities Add Value? Evidence from the Traditional Banks. J Financ Serv Res 35, 81–98 (2009). https://doi.org/10.1007/s10693-008-0039-2
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DOI: https://doi.org/10.1007/s10693-008-0039-2