The effect of innovation on financial performance of listed banks in Kenya

Abstract

Advancements in technology have facilitated ways of in which banks and financial institutions do their operations. It remains largely unclear whether banks are adequately innovative in running their businesses given that they are faced with the challenges of stiff competition and rapid technological changes among others. Performance and innovation are related in that banks cannot sustain themselves if they fail to embrace innovation. The study general objective was to determine the effect of Innovation on financial performance of listed banks in Kenya. Theories used in the study included Diffusion Theory of Innovation, Technology Acceptance Model, Constraint Induced Financial Innovation Theory and Financial Intermediation Theory. The target population included 5 conveniently selected banks out of the 11 listed banks. The study sample size was selected from the population using stratified random sampling technique and engaged descriptive research design. The study sample respondents covered the branch managers where 94 respondents were administered questionnaires with a response rate 86.2% filled and returned the questionnaires while 13.8% did not respond. The study used questionnaire as the tool for primary data collection and data collection sheet for secondary data. A pilot study was carried to establish effectiveness of the instruments used in the research. Processing of data integrated both descriptive statistics and inferential statistics with the aid of SPSS. Descriptive statistics involved the use of means and standard deviations and inferential statistics used included Pearson’s correlation coefficient, and multiple regression analysis. Study results showed that product, process, service and institutional innovation had an influence on the financial performance and therefore recommended there is need for banks to enhance financial innovation so that they are able to achieve high levels of financial performance. There is also need for improved process through innovation if the listed banks in Kenya are going to improve their financial performance. The process needs not only to be effective but also efficient in order for the organizations to achieve the set out goals and objectives in terms of performance. Finally, yet importantly, the banks should have a clear business structure that can enhance performance, the banks have adopted enhanced technologies for growth, competition, increased productivity and profits and that the banks act in accordance to its supervisory framework that ensures that all innovation in use are allowed and operationalized.