The Impact of Information Technology Adoption on the Financial Performance of Banking Institutions: Evidence from Emerging Economies, with a Focus on Iraq
Keywords:
Information Technology, Banking Performance, Digital Transformation, IT Governance, Iraq, Emerging EconomiesAbstract
This study aimed to determine the impact of information technology adoption on the financial performance of Iraqi banking institutions during the period 2012–2026. A quantitative, empirical, causal-explanatory, and longitudinal design was employed using an unbalanced panel of 210 bank-year observations obtained from audited financial statements, annual reports, and regulatory disclosures. Information technology adoption was measured through a composite index incorporating digital banking and information technology infrastructure. Financial performance was assessed using Return on Assets, Return on Equity, the Cost-to-Income ratio, and the Non-Performing Loan ratio. The data were analyzed using pooled ordinary least squares, fixed-effects, random-effects, and dynamic System Generalized Method of Moments estimators. The Hausman specification test was used to select the preferred static panel model, while the Hansen and Arellano–Bond tests evaluated instrument validity and serial correlation in the dynamic models. Robustness analyses included alternative standard errors, winsorization, first-difference estimation, and separate digital banking and infrastructure specifications. Information technology adoption had significant positive effects on Return on Assets and Return on Equity and significant negative effects on the Cost-to-Income and Non-Performing Loan ratios. In the preferred fixed-effects models, the coefficients were for Return on Assets, for Return on Equity, for the Cost-to-Income ratio, and for the Non-Performing Loan ratio. The Hausman test favored fixed effects over random effects, , . System GMM results confirmed significant contemporaneous and one-year-lagged effects of information technology adoption across all financial performance indicators. Hansen tests supported instrument validity, and Arellano–Bond tests showed no second-order serial correlation. The coefficient directions and significance remained stable across all robustness specifications. Information technology adoption significantly improves banking profitability, operating efficiency, and loan-portfolio performance, with benefits emerging both immediately and over subsequent periods.
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