Determinants of Financial Innovation Development Within the UAE Financial Firms and Their Impact on Firm Performance

Abstract

This study explores the determinants of financial innovation development within the UAE financial firms and evaluates their impact on firm performance. Using multifaceted measurement methods, it assesses performance through variables such as employee satisfaction, customer satisfaction, work quality, cost reduction, and organizational growth, with the determinants of financial innovation acting as independent variables. The research, grounded in resource-based, knowledge-based, and open innovation theories, examines how these factors influence financial innovation and firm performance. The determinants are categorized into internal and external factors. Internal factors include top management knowledge, R&D, and employees’ knowledge, while external factors involve knowledge transfer, knowledge quality, and technological advancements. Financial innovation, serving as a mediator, is divided into product and process innovation. The study first explores the role of internal and external factors in shaping financial innovation, then analyses how these factors, along with the transformational force of financial innovation, impact the performance of financial institutions. A survey of 387 respondents, using Stratified Sampling, was conducted to assess the impact of financial innovation on firm performance. Structural Equation Modelling (SEM) was used for statistical analysis to explore relationships between variables. The findings emphasize the importance of integrating both internal and external knowledge to drive innovation. Specifically, firms that enhance knowledge acquisition and sharing can boost intellectual capital, which ultimately leads to improved performance and a competitive edge. In terms of practical implications, the study suggests that firms adopt comprehensive knowledge strategies, leverage data effectively, and adapt their business models to meet evolving demands. Future research could expand these insights into non-financial sectors.

Keywords: internal & external determinants, financial innovation, mediator variable, financial firms of the United Arab Emirates, firm performance