Assessing AI disclosure and financial performance in the Jordanian banking sector: A dynamic panel econometric analysis

This study aims to examine the connection between the disclosure of AI and financial performance of the banking sector in Jordan within a robust panel econometric setup. The purpose of this study is to examine the connection between Artificial Intelligence (AI) disclosure and financial performance of Jordanian banks in a wide-ranging panel econometric approach. The study uses the annual data of the 20 banks in Jordan for the period (2017-2023). The current study differs from previous studies in using panel unit root tests, panel cointegration analysis, fixed-effects and random-effects estimation, Hausman specification testing, and dynamic System Generalized Method of Moments (System GMM) estimation to overcome econometric problems such as non-stationarities, heteroskedasticity, serial correlation, cross-sectional dependence, and endogeneity. AI disclosure is assessed using a newly-developed AI Disclosure Index (AIDI) created by analyzing the textual content of annual reports against the AI Disclosure categories derived from the validated AI disclosure categories covering AI infrastructure, applications, governance, cybersecurity, and digital transformation. ROA and ROE are used for measuring financial performance. The empirical results show that AI disclosure has a positive and significant impact on bank financial performance, as measured by ROE, while accounting for the dynamic persistence and heterogeneity of banks. The results are consistent with alternative specifications and diagnostic procedures. The study is a novel and valuable addition to the literature, as it combines cutting-edge financial econometric techniques with AI disclosure analysis in a new banking market. The results indicate that clear transparency in AI use boosts operational efficiency, builds stakeholder trust, and fosters financial sustainability in banking institutions. The study also offers policy recommendations to regulators and financial institutions to develop a standard for disclosure of AI.