The relationship between product and process innovation on financial performance of commercial banks in kenya
Dioh, Cox P
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This research sought to establish the relationship between return on assets, product innovation and process innovations among commercial banks in Kenya. The data that was used for the analysis were the ROA; the percentage expenditure on product innovation and percentage expenditure on process innovation. ROA was the dependent variable while the two types of innovation were the independent variables. The data covered a period of five years from 2007 to 2011. 24 out of the expected 44 banks in Kenya successfully participated in the study giving response rate of 54.55 %. The correlation analysis showed a majority of the banks recording positive correlation between ROA and PRODUCT, between ROA and PROCESS and between PRODUCT and PROCESS. All the banks had positive correlation between ROA and expenditure on product innovation except two. All the banks also recorded positive correlation between ROA and percentage expenditure on process innovation except two. This indicated that when expenditure in product and process innovation increases, so does return on assets. According to the regression analyses, 15 out of 24 banks had a positive constant term with only nine having negative constant term. 19 banks had positive coefficients of PRODUCT while four had negative coefficients. 14 of the 24 banks had positive coefficient of PROCESS while nine had negative coefficients. The results indicated that 14 out of 24 (58.33 %) banks had a significant relationship between ROA, PRODUCT and PROCESS while the remaining 10 had the relationship not significant as indicated by the F-statistics. The indication is that investment in innovation is closely connected to the profitability of banks as the banks reap higher ROA. This study recommends that banks spend more resources and time on product and process innovation.