Effect of Process Innovations on Financial Performance of Commercial Banks in Kenya

Abstract

Process innovations positively influence the firm’s performance and ultimately influence the industry’s performance and interactions. This study aimed to evaluate the effect of identified process innovations as independent variables on the financial performance as dependent variables in Kenyan commercial banks using panel data for the period from 2014 to 2018. The study assessed the performance of the commercial banks during the pre-innovation period of 2009 to 2013 using return on assets the performance measure and compared the performance during the two periods. Based on the analysis results, firms’ performance as measured by the return on assets (ROA) improved during the post innovations period as compared to pre-innovations period as per the calculated p- values. The findings show that mobile banking transactions, agency banking transactions and internet banking transactions controlled by the firm size and leverage positively affect the financial performance of commercial banks in Kenya. Further, it can be deduced that in order to harness efficiency and operational effectiveness, banks need to be innovative to provide better service to their customers, save on costs, tap markets towards competing effectively. The study evaluated the commercial banks in Kenya especially those whose data on innovation activities was available. The F-statistics test was used to test the validity of the variables and the model used. However, though the findings of the study were positive, further research should be conducted especially focusing on the effects of other forms of innovations (product innovation, marketing and organization innovation) and evaluate how they influence firms performance using other performance measures and incorporating other variables like ownership structures, capital structures or corporate governance measures as either mediating or moderating variables.

Keywords: Innovation activities, financial institutions, financial inclusion, mobile banking, internet banking and agency banking.

DOI: 10.7176/JESD/10-20-03

Publication date:October 31^st 2019