DOES INNOVATION DETERMINE THE OPERATIONAL AND FINANCIAL PERFORMANCE? EVIDENCE FROM BANKING SECTOR OF PAKISTAN

Abstract

This study empirically analyzes the effects of innovation on the operational and financial performance of the banking sector during the time frame from 2010 to 2020. Innovations including automatic teller machines, internet banking and point of sale on the performance of banks are examined through a dynamic panel model using a generalized method of moments. To reduce the correlation and biasness problem GMM estimators are formulated. The results of this study display that automatic teller machines and internet banking have a positive impact on financial performance whilst they have a negative effect on operational performance. Although Point of sale has a poor substantial impact on the financial performance of banks, but it has spacious effect on the banks’ operational performance. The findings of the study expand the understanding of bank managers to improve their market share through innovative electronic banking in the fierce global competition within the banking industry. Keyword: Innovation, financial and operational performance, ROA, ROA, NIM dynamic panel model, profitability