Exploring the Relationship between Financial Innovation and Financial Performance: Evidence from Developing Economy

Abstract

Digital finance is a new field that blends inclusive financial innovation with new models brought about by technological improvements. Due to this, it is now essential for businesses to give competitive and innovative product market competition top priority. Consequently, laws governing the corporate environment and financial digitalization contribute to improving the financial performance of businesses. This study assesses the effect of financial innovation on financial performance. The commercial banks that operate in Peshawar district of Pakistan make up the study's population. A representative proxy for institutional innovation, process innovation, and product innovation is used in the computation of financial innovations.  Return on Assets (ROA) is a measure used to evaluate financial performance. The sample of Pakistani commercial banks from 2013 to 2022 is analyzed in this research. In this research, purposive sampling was used. Using that method, the researcher limited the selection of firms to those for whom the data for all years was available. The present research study employs positivism as its research philosophy. For this study, the researcher used a deductive methodology. This study is quantitative in the light of theories and literature. Using panel data, this research used multivariate analysis and several diagnostic tests. The result of the study shows that product innovation and process innovation improve the financial performance of commercial banks operating in Peshawar district of Pakistan. This study provides suggestions for policy maker as well as investors to concentrate on financial innovation because it enhances the financial performance.