The Effect of Financial Innovation and Bank Competition on Firm Value: A Comparative Study of Malaysian and Nigerian Banks

Abstract

This study examines the effect of financial innovation (FI) and bank competition on firm value. Financial innovation refers to the creation of new financial instruments as well as new financial technologies, institutions, and markets. The study employs the system GMM estimation technique based on data extracted from 26 commercial banks in Nigeria and Malaysia over the period 2009 to 2019, totaling 286 observations. The results indicate that FI has a significant negative effect on firm value in Nigeria, while bank competition also has a significant negative effect on firm value in Nigeria. By contrast, FI has a significant positive effect on firm value in Malaysia, and bank competition likewise has a significant positive effect on firm value in Malaysia. Return on assets (ROA), bank size, GDP growth, and the inflation rate are found to be significantly related to firm value. Furthermore, the interactive effect (FI × COMP) has a significant positive relationship with firm value in both Nigeria and Malaysia. The empirical findings confirm that financial innovation is a key driver of economic progress, competitiveness, and economic development. Accordingly, the study suggests that policymakers should address the weaknesses revealed by the financial crisis, which led to the introduction of various financial regulatory frameworks aimed at capturing the risks associated with the financial innovation process.