The purpose of this paper is to examine the impact of online banking intensity on the financial performance of community banks.
This study estimates online banking intensity and bank performance indices using a combination of primary and secondary data. Online banking intensity is specified as a latent construct and estimated using web feature data collected from bank websites. An empirical profit function of a nonstandard Fourier flexible form is estimated using bank's financial data to derive a theoretically consistent performance measure. The actual impact of online banking on performance is measured by regressing the profit efficiency index against a number of correlates including online banking intensity measure.
Study results indicate that the increasing use of internet as an additional channel of marketing banking services has significantly improved the financial performance of community banks.
These results show that online banking improves the financial performance and should encourage community banks to adopt new information technologies and offer targeted online services.
This paper is the first of its kind that applies a structural equation modeling framework to develop a comprehensive online banking intensity measure, which accounts for a wide array of products and services offered online by a bank, and utilizes the estimated index in measuring the impact of internet banking intensity on bank performance.
