Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Role of Financial Innovation on Firm’s Financial Performance: Mediating Role of R&D Spending Instability with Special Reference to the Indian Banking Sector


Affiliations
1 Associate Professor, IITM, Delhi, India
2 Assistant Professor, Rukmini Devi Institute of Advanced Studies, GGS Indraprastha University, Delhi, India
     

   Subscribe/Renew Journal


Innovation is a well-thought-out crucial chauffeur in today’s viable markets for ensuring great success of the firms. This present study tried to find the effect of financial innovation on financial performance of the Indian banking sector. The mediating role of the research & development investment instability is also measured. Data for the study were obtained from working professionals employed in different scheduled banks of India in the Delhi – NCR region. CFA and structural equation modelling techniques were used for data analysis via SPSS & AMOS. Process Macro was also used for mediation analysis. The major findings of this research acknowledge that the different dimensions of financial innovation that are important for a bank’s financial performance are financial product innovation and financial process innovation. A direct noteworthy relationship exists between financial innovation and financial performance. In addition, there exists a partial mediation between research & development investment fluctuation, and financial innovation and financial performance. The real-world inference of this study is that selecting the suitable financial innovation forms can boost the bank’s financial performance.

Keywords

Indian Banks, Financial Innovation, Financial Performance, Investment Fluctuation, Research & Development
Subscription Login to verify subscription
User
Notifications
Font Size


  • Akaike, H. (1979). A Bayesian extension of the minimum AIC procedure of autoregressive model fitting. Biometrika, 66(2), 237-242.

  • Amritha, N. P. (2018). Financial innovations in Indian banking industry an evaluation of innovativeness and financial performance of selected banks.

  • Atalay, M., Anafarta, N., & Sarvan, F. (2013). The relationship between innovation and firm performance: An empirical evidence from Turkish automotive supplier industry. Procedia – Social and Behavioral Sciences, 75(3), 226-235.

  • Atuahene-Gima, K. (2001). An empirical investigation of the effect of market orientation and entrepreneurship orientation alignment on product innovation. Organization Science, 12(1), 54-74.

  • Baker, W. E., & Sinkula, J. M. (2012). Market orientation, learning orientation and product innovation: Delving into the organization’s black box. Journal of Market Focus Management, 5(1), 5-23.

  • Beck, T., Chen, T., Lin, C., & Song, F. (2012). Financial innovation: The bright and the dark sides. Journal of Banking & Finance, 78, 28-51.

  • Beneito, P., Rochina-Barrachina, M. E., & Sanchis-Llopis, A. (2014). Ownership and the cyclicality of firms’ R&D investment. International Entrepreneurship and Management Journal, 11(2), 343-359.

  • Bhatt, V. (1989). Financial innovation and credit market development. Washington DC: World Development Report.

  • Biswas, S., & Bhattacharya, M. (2020). Financial performance analysis of new generation private sector banks: A camel model approach in Indian context. Journal of Commerce & Accounting Research, 9(4), 37-44.

  • Brown, S. L., & Eisenhard, K. M. (1995). Product development: Past research, present findings, and future directions. Academy of Management Review, 20(2), 343-378.

  • Byrne, B. M. (2010). Structural equation modeling with AMOS: Basic concepts, applications, and programming (2nd ed.). Mahwah, NJ: Lawrence Erlbaum Associates.

  • Cherotich, K. M., Sang, W., Shisia, A., & Mutung’u, C. (2015). Financial innovations and performance of commercial banks in Kenya. International Journal of Economics, Commerce and Management, 3(5), 1242-1265.

  • Cho, H. J., & Pucik, V. (2005). Relationship between innovativeness, quality, growth, profitability, and market value. Strategic Management Journal, 26, 555-575.

  • Damanpour, F. (1992). Organizational size and innovation. Organization Studies, 13(3), 375-402.

  • Darroch, J., & McNaugton, R. (2002). Examining the link between knowledge management practices and types of innovation. Journal of Intellectual Capital, 3(3), 210-222.

  • DeYoung, R., Lang, W. W., & Nolle, D. L. (2007). How the internet affects output and performance at community banks, Journal of Banking & Finance, 31(4), 1033-1060.

  • Eberhart, A. C., Maxwell, W. F., & Siddique, A. R. (2004). An examination of long-term abnormal stock returns and operating performance following R&D increases. Journal of Finance, 59(2), 623-650.

  • Exposito, A., & Sanchis-Llopis, A. J. (2019). The relationship between types of innovation and SMEs’ performance: A multidimensional empirical assessment. Eurasian Business Review, 9, 115-135.

  • Faina Medin, J. A., Losada-Lopez, C., & Montes-Solla, P. (2016). Innovation and entrepreneurship: Sorting the puzzle of the new business management of innovation (MPRA Paper 75479). University Library of Munich.

  • Forrer, A. S., & Forrer, D. A. (2015). Analysis of the relationship between economic cycle swings and adoption rate models of financial innovation diffusion. Journal of Business & Economics Research, 13(2), 103-114.

  • Gunday, G., Ulusoy, G., Kilic, K., & Alpkan, L. (2011). Effect of innovation type on firm performance. International Journal of Marketing, 62, 30-45.

  • Gunday, G., Ulusoy, G., Kilic, K., & Alpkan, L. (2011). Effects of innovation types on firm performance. International Journal of Production Economics, 133(2), 662-676.

  • Gündoğdu, A., & Taşkin, F. D. (2017). Analysis of the relationship between financial innovation and the performance of Turkish banking. International Review of Economics and Management, 5(3), 16-32.

  • Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modelling in international marketing. Advances in International Marketing, 20(1), 277-319.

  • Hernandez-Espallardo, M., & Delgado-Ballester, E. (2009). Product innovation in small manufacturers, market orientation and the industry’s five competitive forces: Empirical evidence from Spain. European Journal of Innovation Management, 12(4), 470-491.

  • Hooper, D., Coughlan, J., & Mullen, M. R. (2008). Structural equation modelling: Guidelines for determining model fit. Electronic Journal of Business Research Methods, 6(1), 53-60.

  • Hu, L. T., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling: A Multidisciplinary Journal, 6(1), 1-55.

  • Jaccard, J., & Jacoby, J. (2010). Theory construction and model-building skills: A practical guide for social scientists. New York, NY.

  • Jirásek, M. (2017). The relationship between R&D spending instability and a firm’s performance. In Proceedings of the 5th International Conference on Management, Leadership and Governance (pp. 495-502).

  • Kimaiyo, K. K., & Ochiri, G. (2014). Role of inventory management on performance of manufacturing firms in Kenya – A case of new Kenya cooperative creameries. European Journal of Business Management, 2(1), 336-341.

  • Kline, R. B. (1998). Software review: Software programs for structural equation modeling: Amos, EQS, and LISREL. Journal of Psychoeducational Assessment, 16(4), 343-364.

  • Lerner, J., & Tufano, P. (2011). The consequences of financial innovation: A counterfactual research agenda. Annu. Rev. Financ. Econ., 3(1), 41-85.

  • Levitt, B., & March, J. G. (1988). Organizational learning. Annual Review of Sociology, 14(1), 319-338.

  • Li, Y., Su, Z., & Liu, Y. (2010). Can strategic flexibility help firms profit from product.

  • Lichtenthaler, U. (2020). Agile innovation: The complementary of design thinking and lean start-up. International Journal of Service Science, Management, Engineering, and Technology, 11(1), 157-167.

  • Lilly, L., & Juma, D. (2014). Influence of strategic innovation on performance of commercial banks in Kenya: The case of Kenya commercial bank in Nairobi county. European Journal of Business Management, 2(1), 336-341.

  • Lin, R. J., Tan, K. H., & Geng, Y. (2013). Market demand, green product innovation, and firm performance: Evidence from Vietnam motorcycle industry. Journal of Cleaner Production, 40, 101-107.

  • Lome, O., Heggeseth, A. G., & Moen, Ø. (2016). The effect of R&D on performance: Do R&D-intensive firms handle a financial crisis better? The Journal of High Technology Management Research, 27(1), 65-77.

  • Mabrouk, A., & Mamoghli, C. (2010). Dynamic of financial innovation and performance of banking firms: Context of an emerging banking industry. International Research Journal of Finance and Economics, 5(6), 20-26.

  • MacCallum, R. C., & Hong, S. (1997). Power analysis in covariance structure modeling using GFI and AGFI. Multivariate Behavioral Research, 32(2), 193-210.

  • Majumdar, A., & Majumdar, D. (2020). Cash flow ratios under growth approach as an indicator for evaluation of business performance. Journal of Commerce & Accounting Research, 9(1), 13-24.

  • Martin, G., Doroteya, V., Kirsten, V. F., & Steve, E. (2017). Product, service, and business model innovation: A discussion [Conference session]. 15th Global Conference on Sustainable Manufacturing, Haifa, Israel.

  • Masso, J., & Vahter, P. (2007). Innovation and firm performance in a catching-up economy. In Proceedings from the Conference on Micro Evidence on Innovation and Development (MEIDE).

  • Melwani, R. (2019). Impact of internal financial determinants on financial performance. Journal of Commerce & Accounting Research, 8(3), 75-85.

  • Miles, R. E., & Snow, C. H. C. (1978). Organizational strategy, structure and process. McGraw-Hill.

  • Miller, D. (1983). The correlates of entrepreneurship in three types of firms. Management Science, 29(7), 770-791.

  • Miller, D., & Friesen, P. H. (1982). Innovation in conservative and entrepreneurial firms: Two models of strategic momentum. Strategic Management Journal, 3(1), 1-25.

  • Miller, S. M. (1986). Financial innovation, depository-institution deregulation, and the demand for money. Journal of Macroeconomics, 8(3), 279-296.

  • Mohamad, M. R., & Sidek, S. (2013). Innovation and firm performance: Evidence from Malaysian small and medium enterprises.

  • Muia, S. W. (2017). The effect of financial innovations on financial performance of commercial banks in Kenya (Doctoral dissertation, KCA University).

  • Narver, J. C., & Slater, S. F. (1990). The effect of a market orientation on business profitability. Journal of Marketing Research, 54, 20-35.

  • Neely, A., Filippini, R., Forza, C., Vinelli, A., & Hii, J. (2001). A framework for analyzing business performance, firm innovation and related contextual factors: Perceptions of managers and policy makers in two European regions. Integrated Manufacturing Systems, 12(2), 114-124.

  • Ngumi, P. M. (2014). Effect of bank innovations on financial performance of commercial banks in Kenya (Doctoral dissertation).

  • Nunnally, J. (1978). Psychometric theory. New York, NY: McGraw-Hill.

  • Obeng, Y. A., & Boachie, E. (2018). The impact of IT-technological innovation on the productivity of a bank’s employee. Cogent Business & Management, 5, 1-19.

  • OECD. (2005). Oslo manual: Guidelines for collecting and interpreting innovation data (3rd ed.). Luxembourg: OECD Publishing.

  • PSI: Policy Studies Institute. (2018). Retrieved from http:?//www.psi.org.uk/

  • Rai, K., & Gupta, A. (2021). Financial literacy leads to retirement financial planning: A structural equation modelling approach. Journal of Commerce & Accounting Research, 10(4), 9-18.

  • Rai, K., Dua, S., & Yadav, M. (2019). Association of financial attitude, financial behaviour, and financial knowledge towards financial literacy: A structural equation modeling approach. FIIB Business Review, 8(1), 51-60.

  • Rajapathirana, R. P. J., & Hui, Y. (2018). Relationship between innovation capability, innovation type, and firm performance. Journal of Innovation & Knowledge, 3(1), 44-45.

  • Reuben, O. (2012). Innovations in commercial banking (Degree Programme of International Business,

  • University of Applied Sciences, Business Economics and Tourism).

  • Shin, N., Kraemer, K. L., & Dedrick, J. (2009). R&D, value chain location and firm performance in the global electronics industry. Industry and Innovation, 16(3), 315-330.

  • Solans, D. (2003). Financial innovations and monetary policy. Speech, Delivered at the 38th SEACEN Governors Conference and 22nd Meeting of the SEACEN Board of Governors on Structural Change and Growth.

  • Stiglitz, J. E. (2010). Financial innovation: Against the motion that financial innovation boosts economic growth. The Economist, 23.

  • Szakonyi, R. (1994). Measuring R&D effectiveness—I. Research-Technology Management, 37(2), 27-32.

  • Tajeddini, K., Trueman, M., & Larsen, G. (2006). Examining the effect of market orientation on innovativeness. Journal of Marketing Management, 22(5/6), 529-551.

  • Tuan, N., Nhan, N., Giang, P., & Ngoc, N. (2016). The effects of innovation on firm performance of supporting industries in Hanoi, Vietnam. Journal of Industrial Engineering and Management, 9(2), 413-431.

  • Vargas, A. R. (2007). Assessing the contribution of financial innovations to the production of implicit services of financial intermediation in Costa Rica. IFC Bulletin, no. 31.

  • Vinayagamoorthy, A. (n.d.). Role of reach of internet banking in India.

  • Wyman, O. (2012). Rethinking financial innovation: Reducing negative outcomes while retaining the benefits. In A World Economic Forum Report in Collaboration with Oliver Wyman (pp. 1-92).

  • Yilmaz, C., Alpkan, L., & Ergun, E. (2005). Cultural determinants of customer- and learning-oriented value systems and their joint effects on firm performance. Journal of Business Research, 58, 1340-1352.

  • YuSheng, K., & Ibrahim, M. (2019). Service innovation, service delivery and customer satisfaction and loyalty in the banking sector of Ghana. International Journal of Bank Marketing.

  • YuSheng, K., & Ibrahim, M. (2020). Innovation capabilities, innovation types, and firm performance: Evidence from the banking sector of Ghana. SAGE Open, 10(2).

  • Zhang, S., Yang, D., Qiu, S., Bao, X., & Li, J. (2018). Open innovation and firm performance: Evidence from the Chinese mechanical manufacturing industry. Journal of Engineering and Technology Management, 48, 76-86.


Abstract Views: 269

PDF Views: 0




  • Role of Financial Innovation on Firm’s Financial Performance: Mediating Role of R&D Spending Instability with Special Reference to the Indian Banking Sector

Abstract Views: 269  |  PDF Views: 0

Authors

Kamini Rai
Associate Professor, IITM, Delhi, India
Abha Gupta
Assistant Professor, Rukmini Devi Institute of Advanced Studies, GGS Indraprastha University, Delhi, India

Abstract


Innovation is a well-thought-out crucial chauffeur in today’s viable markets for ensuring great success of the firms. This present study tried to find the effect of financial innovation on financial performance of the Indian banking sector. The mediating role of the research & development investment instability is also measured. Data for the study were obtained from working professionals employed in different scheduled banks of India in the Delhi – NCR region. CFA and structural equation modelling techniques were used for data analysis via SPSS & AMOS. Process Macro was also used for mediation analysis. The major findings of this research acknowledge that the different dimensions of financial innovation that are important for a bank’s financial performance are financial product innovation and financial process innovation. A direct noteworthy relationship exists between financial innovation and financial performance. In addition, there exists a partial mediation between research & development investment fluctuation, and financial innovation and financial performance. The real-world inference of this study is that selecting the suitable financial innovation forms can boost the bank’s financial performance.

Keywords


Indian Banks, Financial Innovation, Financial Performance, Investment Fluctuation, Research & Development

References