Financial innovation : theoretical issues and empirical evidence in Italy and in the UK

In the first part of the paper, we try to clearly identify financial innovations
and draw a general framework. Despite the relevance of financial innovations,
a unique definition is difficult to find. We then provide empirical evidence of
such innovations on a sample of Italian and UK listed banks over the period 2005–
2007 using financial account data. First, the absence of any mention of a specific
organizational unit in charge of research and development (R&D) is highlighted.
However, the existence of a research and developmental function involving different
organizational units cannot be excluded. Second, innovation seems to be
mainly concentrated in the product area, both in Italy and in the UK. This could
be accounted for by the difference in the ‘‘life cycles’’ of innovations and by the
different operational conditions of banks in both systems. Third, larger banks seem
more innovative, both in Italy and in the UK. No clear relation between innovation
and cost reduction/revenue increase seems to exist, at least in Italy. In the light of
the above considerations, policy implication comes to light on whether the choice of
not establishing a specific organizational unit dedicated to R&D could turn out
effective in the medium-long term.