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
Highlights
Innovation is the process of implementing original or expressively enhanced process, good or service, organizational method or marketing method in workplace organization, business operations and practices, or external relations (Manual, 2005)
This paper evaluated the following questions and issues through the empirical analysis and research: a) Do process innovations influence the performance of firms positively or negatively? b) To what extent do these innovations affect the industry’s performance and influence its equilibrium state? c) Does process innovation enhance industrial interaction or barely supports industry differentiation? Further, the paper provided a locus for making pertinent decisions on the effect of process related innovations on the Kenya’s commercial banks financial performance and associated research in emerging markets for developing economies
The results of our analysis showed that the transactions through mobile banking, agency banking and internet banking had an effect on the commercial banks financial performance in Kenya
Summary
Innovation is the process of implementing original or expressively enhanced process, good or service, organizational method or marketing method in workplace organization, business operations and practices, or external relations (Manual, 2005). In order for innovation to be valid, the marketing method, product, organizational method or process should either be significantly improved or new to the firm (Zhao and Sun 2016). In relation to the product innovation the development or improvement of a good or service has to be based on its features or proposed purpose. The process innovations objectives may be to deliver new products, increase quality, decrease unit production or delivery costs and produce or products that have been significantly improved (Wang, Hang et al 2016)
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