Interaction effect between product and process innovation: the case of Tunisian banks

Abstract

The authors examine the impact of the relationship between two types of financial innovation and bank performance. The research attempts to test hypotheses that are not yet validated by previous studies focusing on the financial services industry, thus, giving the study an exploratory look. The authors try, specifically, to determine the interaction effect of both types of financial innovation on bank performance and, then, try to enrich innovation theory with new hypotheses on product and process innovation. The results show that Tunisian banks have begun, probably, to see the importance or the need for the simultaneous adoption of two types of financial innovation since 1995 to improve their poor performance. The authors also find that the interaction effect of product and process innovation reduces profitability. However, efficiency is achieved in terms of market share and value. The authors conclude that financial innovation is a value creation instrument for Tunisian banks

Financial Innovation, Risk Management, and Bank Performance

“…In condition 2, the analysis records negative and significant beta coefficients across CAR and ORW, which is not verified for credit risk management. As a matter of fact, this result partially validates H2, and confirms the findings in the previous empirical research stating that innovation influences risk management (Philippas & Siriopoulos, 2009;Mabrouk et al, 2016;Zia et al, 2019).…”

“…In addition, Mabrouk and Mamoghli (2010) point out that the primary mover of product innovation improves the bank profitability, and the primary mover in process innovation has a positive effect on bank profitability and efficiency. Mabrouk, Dhouibi and Rouetbi (2016) conclude that financial innovation is a value creation instrument for Tunisian banks. Several studies demonstrate as well that bank performance increase after the adoption of innovation (Mustapha, 2018;Chipeta & Muthinja, 2018;Lotto, 2019).…”

“…This study highlights these four risk management strategies, which are critical for commercial banks to resolve their credit risk. Mabrouk et al (2016) show that there is a significant direct effect of each innovation type (process / product) on credit risk, adopting that product innovation has increased the volume of non-performing loans of Tunisian Banks. Therefore, we posit the hypothesis as follows:…”

Indonesian Peer to Peer Lending (P2p) at Entrant’s Disruptive Trajectory

“…An interest in financial innovation has become increasingly important with the latest developments in the financial and banking business. It has become important that banking institutions should try to increase their innovation arsenal (Abir, Raoudha, & Emna, 2016). FinTech is an innovation that plays a role in changing the financial and banking landscape and many start-up businesses use FinTech to enter the financial industry whose impact on incumbents is not yet unpredictable.…”