INSTITUTIONAL QUALITY: THE HIDDEN ENGINE BEHIND FINANCIAL INNOVATION

Abstract

Regardless of the increased research on institutional quality and financial innovation, there remained a review gap in this string of knowledge. Thus, we have highlighted the gaps in the existing knowledge of financial innovation and institutional quality through systematic analysis of the literature review and used a meta-analysis procedure, to sum up past quantitative studies on financial innovation and institutional quality to identify the direction and strength of the relation. Our analyses include 553 types of research on institutional quality and financial innovation for systematic literature review and 36 quantitative types of research for meta-analysis from 2000 to 2022. By examining the relationship between financial innovation and institutional quality, we established a rounded picture of what prevailing empirical researchers have identified and addressed the contradictions and inconsistencies in the available literature. It is acute given that the financial innovation and institutional quality nexus is still early. Thus, research on financial innovation and institutional quality is strong in some areas while weak in others. We find that institutional quality and financial innovation are positively correlated. We conclude that the knowledge has yet to develop that institutional quality matters for financial innovation vigorously. The study recommends improving institutional quality as a strategic action to foster financial innovation and enhance their innovation potential.