The Impact of Innovation on Profitability and Market Value of Banks: Evidence from the United States

This study examines the impact of the determinants of financial innovation (in particular, the introduction of branches, Automated Teller Machines - ATMs, and mobile banking) on the profitability and market value of United States banks. The paper provides a theoretical comparison of the importance of offline channels and mobile banking for banks in two types of markets – developed and developing. An analysis of extensive literature on the developing market allows to conclude that ATMs have a positive and significant impact on the profitability of banks, however, it is impossible to draw clear conclusions about the significance of mobile banking for such markets. The panel data analysis conducted in this paper allows to draw conclusions that in the developed US market, the number of ATMs negatively and significantly affects the profitability of banks; the diffusion of innovation, defined as the ratio of the number of ATMs to the number of branches, does not affect the profitability and market value of banks; and mobile banking, expressed in the number of active mobile banking users, has a positive and significant effect on the profitability and market value of banks. This analysis is aimed to cover the lack of modern literature on the impact of innovation on the profitability and market value of banks and try to rethink the conclusions of earlier articles of the 1980-1990s which became less relevant in the recent years due to the huge changes in the developed markets’ banking.