The Ethiopian banking system is very much behind in the adoption of financial innovations compared to the rest of the world, however, the Ethiopian financial sector cannot remain an exception in expanding the use of the modern banking. The main objective of this study was to examine the effect of financial innovations on the profitability growth of commercial banks in Ethiopia.
The specific objectives were to examine the effect of product innovation, bank specific factors and macro-economic factors on profitability growth in commercial banks. The study were used quantitative research, secondary data, and data was analyzed using both descriptive and inferential statistics and employed purposive sampling technique to select 12 banks for the study in the periods from 2016 to 2019. Multiple regression with the aid of STATA 14 software was used to examine in this study.
Table of Contents
Chapter One
1.1 Introduction.
1.1.1 Financial Innovation in Global Context
1.1.2 Financial innovation in Ethiopia Context
1.2 Statement of the Problem
1.3 Research Questions of the Study
1.4 Objectives of the Study
1.4.1 General Objectives of the study
1.4.2 Specific Objectives of the Study
1.5 Hypothesis Testing of the Study
1.6 Scope of the Study
1.7 Significant of the Study.
1.8 Limitations of the Study
1.9 Organization of the Study
1.10 Definition of Key Terms
Chapter Two
2.1 Introduction
2.2 Concept of Financial Innovation
2.2.1 Categorization of Financial Innovation
2.2.2 Types of Innovations
2.2.3 Financial innovation in Ethiopia
2.2.4 Innovations and Banking profitability
2.2.5 Growth in profitability
2.2.6 Factors that affect Innovation on Bank Profitability.
2.3 Theoretical Review on Innovation
2.3.1 Schumpeter Theory of Innovation
2.3.2 Innovation Diffusion Theory
2.3.3 Financial Intermediation Theory
2.3.4 Task-technology fit (TTF) theory
2.3.5 Regulation Innovation Theory
2.3.6 Transaction Cost Innovation Theory
2.4 Empirical of the Study
2.5. Research Gap
2.6 Conceptual Framework.
Chapter Three
3.1 Research Methodology
3.2 Research Design
3.3 Research Approach
3.4 Population of the Study
3.5 Sample Size
3.6 Data Collection and Procedure
3.7 Data Analysis
3.8 Model Specification and Analysis
Chapter Four
4.0 Result and Discussion
4.1 Introduction
4.2 Descriptive Statistics
4.3 Correlation of the Variables.
4.4 Diagnostic Testing
4.5 Hausman Diagnostic Test.
4.6 LM Test
4.7 Random Effects Model Regression
4.8 Regression Result analysis
4.9 Test of Hypothesis
4.10 Chapter summery
Chapter Five
5.1 Introduction
5.2 Conclusions of major Findings
5.3 Contribution of the study
5.4 Recommendation
5.5. Suggestion for Further Studies
Research Goals and Key Topics
This study aims to investigate the influence of financial innovations on the profitability growth of the Ethiopian commercial banking sector by analyzing the nexus between product innovations, bank-specific factors, and macroeconomic variables.
- Impact of product innovations (ATMs, mobile/internet banking, etc.) on bank profitability.
- Analysis of bank-specific determinants like bank size, age, and employee capacity.
- Examination of macroeconomic influences including GDP, inflation, and interest rates.
- Evaluation of the Ethiopian banking sector's performance using quantitative panel data models.
Excerpt from the Book
1.1.1 Financial Innovation in Global Context
The world banking and financial system are in the throes of a transformation caused by increasing globalization and deregulation, Financial innovations such as those available (ATMs, Mobile banking, Internet banking, debit cards, credit cards, agency banking, and smartcard applications) are taking place at an overwhelmingly fast pace in the global banking industry (Patra, 2012). The financial products and services such as ATMs, Internet banking, credit cards, online banking, and agency banking are becoming more and more relevant, as found the general profitability of the banks that are based in the USA and European countries make advanced technology essential in using electronic banking applications, accordingly, a positive and significant connection can be established between Financial Innovations and competition enhancement for firms in the banking sector as well as the performance of the individual banks (weigelt & sarkar, 2012).
Globally, the financial system is undergoing rapid transformation and transfiguration which is attributed to the immense processes of decontrol and globalization (Pandey, 2010). According to (Pilbeam, 2010), deregulation and increased competition in the financial sector has ensured that traditional boundaries between financial institutions are becoming increasingly blurred Consequently, liberalization has been concerned with less government intervention in the regulation of the financial services sector and Liberalization has led to the conception of a room for essentially consenting for innovations and the creation of a wide range of services in the financial industry thus deepening financial services in effect, deregulation is coupled with the view of tolerating the growth of the financial services sector without over-burdensome restrictions.
Summary of Chapters
Chapter One: This chapter introduces the study, outlines the problem statement regarding the adoption of financial innovations in the Ethiopian banking sector, and defines the research objectives and hypotheses.
Chapter Two: This chapter reviews the conceptual and theoretical frameworks on financial innovation, as well as existing empirical literature concerning its impact on banking performance.
Chapter Three: This chapter details the research methodology, including the design, population, sample size, data collection procedures, and model specification used to analyze the data.
Chapter Four: This chapter presents the empirical results, including descriptive statistics, correlation analysis, and regression results, while discussing these findings in context.
Chapter Five: This chapter concludes the study by summarizing major findings, highlighting the research contribution, offering recommendations for banks, and suggesting future research directions.
Keywords
Product innovation, Bank Specific Factors, Macro-Economic Factors, Profitability Growth, Commercial Banks in Ethiopia, Stata, Financial Innovation, E-banking, ATM, Mobile Banking, Agency Banking, Internet Banking, Debit Cards, Regression Analysis
Frequently Asked Questions
What is the primary focus of this research?
The study examines the impact of various financial innovations—specifically product-related services like ATMs, mobile banking, and debit cards—on the growth in profitability of commercial banks operating in Ethiopia.
What are the core thematic areas?
The core subjects include the evolution of digital banking products, the influence of internal bank specific indicators, and the role of macroeconomic environmental factors on bank earnings.
What is the central research question?
The main objective is to determine how financial innovation, when adjusted for bank-specific and macroeconomic variables, influences the profitability growth of the Ethiopian banking sector.
Which scientific methodology is employed?
The study utilizes quantitative research with secondary data, employing a panel regression analysis approach processed through STATA 14 software to test its hypotheses.
What does the main body of the work cover?
The main body covers a comprehensive literature review, the derivation of the conceptual framework, the research design and methodology, and a thorough data analysis and discussion based on regression results.
Which keywords characterize this work?
Key terms include: Product innovation, Bank Specific Factors, Macro-Economic Factors, Profitability Growth, Commercial Banks in Ethiopia, Stata, Financial Innovation, and E-banking.
How does this study differ from previous analyses in Ethiopia?
Unlike earlier local studies that focused primarily on E-banking, this research expands the scope to include "Product Innovations" as a category and incorporates both bank-specific and macroeconomic variables to more accurately neutralize confounding factors.
What is the conclusion regarding the impact of mobile banking?
The results indicate that mobile banking has a positive and statistically significant effect on the profitability growth of Ethiopian commercial banks, suggesting that adoption enhances income and operational efficiency.
- Quote paper
- Abdihakeem Omer (Author), 2020, The effect of financial innovations on profitability of commercial banks of Ethiopia, Munich, GRIN Verlag, https://www.grin.com/document/1324645
