The Impact of Financial Innovation on Corporate Financial Performance

Abstract

This review research paper aims to examine the impact of financial innovation on corporate financial performance. It seeks to explore the relationship between financial innovation and various indicators of financial performance, such as profitability, liquidity, and market value. Theoretical framework: The study is based on a comprehensive review of existing literature on financial innovation and its effects on corporate financial performance. It draws upon theories and models from finance and innovation research, including the resource-based view, agency theory, and the disruptive innovation theory. A systematic literature review was conducted to identify and analyze relevant studies published in academic journals and reputable databases. The review encompasses a wide range of financial innovations, including but not limited to, fintech, blockchain technology, robo-advisory services, and crowdfunding platforms. The findings from these studies are synthesized to provide insights into the impact of financial innovation on corporate financial performance. The review reveals that financial innovation can have both positive and negative effects on corporate financial performance. On one hand, it can lead to improved operational efficiency, increased access to capital, and enhanced risk management, thereby positively impacting financial performance. On the other hand, it can also introduce new risks and challenges, such as cybersecurity threats and regulatory complexities, which may negatively affect financial performance. The findings highlight the importance of carefully managing financial innovation initiatives to maximize their potential benefits while mitigating associated risks. This research has significant implications for both researchers and practitioners. It enhances our understanding of the complex relationship between financial innovation and corporate financial performance, providing insights into the mechanisms through which financial innovation affects firms' financial outcomes. The findings offer practical guidance for firms in adopting and implementing financial innovations strategically, considering their potential impact on financial performance. Moreover, this study contributes to the broader societal understanding of the consequences of financial innovation, assisting policymakers in formulating effective regulatory frameworks to foster innovation while safeguarding financial stability. This review research paper contributes to the literature by consolidating and analyzing the existing knowledge on the impact of financial innovation on corporate financial performance. It synthesizes diverse empirical studies and theoretical frameworks, providing a comprehensive overview of the subject matter. This paper adds value by identifying research gaps and future directions for scholars interested in further investigating the complex relationship between financial innovation and corporate financial performance.