PhD (Finance), School of Economic and Business Sciences,
UNIVERSITY OF THE WITWATERSRAND, JOHANNESBURG
8th June, 2016 / This study examines the relationship between financial innovation and financial performance of
commercial banks in Kenya, as well as the drivers of financial innovations at both firm and macro
levels. The financial innovations covered are the branchless banking models, which represent a
departure from the traditional branch-based banking. More specifically, the financial innovations
covered are: Mobile banking, agency banking, internet banking and Automated Teller Machines
(ATMs). The study uses 10-year panel (secondary) data for the period spanning year 2004 to 2013.
The study conducts an empirical analysis of the four types of financial innovations using three
econometric models. The models have been specified using Koyck distributed lag models and
estimated using dynamic panel estimation with System Generalised Method of Moments (GMM).
The speed of adjustment of bank financial performance to financial innovation as well as the speed
of adjustment of financial innovation to the financial innovation drivers has been tested using
Koyck mean and median lags. The empirical results provide strong evidence of the link between
financial innovations and bank financial performance with respect to Kenyan commercial banks.
The study makes a number of other findings. Firstly, financial innovations significantly contribute
to firm financial performance and that firm-specific factors are more important to the firm’s current
financial performance than industry factors. Secondly, firm-specific variables significantly drive
financial innovations at firm level with firm size being the most significant driver of financial
innovation at firm level. The firm specific factors include firm size, transaction costs, agency costs,
and technological infrastructure at firm level. Thirdly, macro level variables significantly drive
financial innovation at firm level with regulation being the most important driver at macro level.
The macro level drivers reviewed include: Regulation and taxes, incompleteness in financial
markets, technological infrastructure at macro level and globalisation. Lastly, the existence of
reverse causation between firm financial performance and firm financial innovation is established.
The speed of adjustment of firm financial performance to financial innovation has been
determined. The results show that it takes on average 1.179 years for bank financial performance
to adjust to the four financial innovations studied. Secondly, it takes less than a year (0.368 years)
to accomplish 50% of the total change in firm performance following a unit-sustained change in
the financial innovations. Moreover, mobile banking has the shortest mean lag (2.849) while
ATMs have the longest mean lag (4.926). Therefore, it takes approximately three years for mobile
banking to adjust to financial innovation drivers at firm level and on average five years for ATMs
to adjust to the financial innovation drivers. By and large, the speed of adjustment of financial
innovations to macro level drivers is higher than the speed of adjustment of financial innovations
to firm level drivers.
This study has made significant contribution to the body of knowledge in the field of financial
innovations. The study has developed an econometric model which captures four financial
innovations in a single study and empirically used the model to test their link to firm financial
performance. The second and third econometric models have also captured the drivers of financial
innovations at firm and macro levels. The reviewed literature observes that previous studies have
largely focused on financial products in developed countries at the expense of emerging financial
innovations in developing countries. In addition, previous studies have also largely ignored
empirical approaches to the study of financial innovations. This study has empirically established
the link between financial innovations and firm performance by modelling the four innovations in
single model in a developing country (Kenya) context. One of the major contributions of this study
is the establishment of the speed of adjustment of firm performance to financial innovations and
the speed of adjustment of financial innovations to financial innovation drivers at both firm and
macro levels. Lastly, the study has developed an original conceptual financial innovation value
model (Fig. 6.1), which will be used in future financial innovation studies. This study has a number
of managerial and policy implications which have been reviewed in the study. / MT2017
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/21983 |
| Date | January 2016 |
| Creators | Muthinja, Moses Mwenda |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | Online resource (xv, 219 leaves), application/pdf |
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