The impact of financial technology and risk management practices on corporate financial system profitability: evidence from Kuwait

Abstract

A vital element of the stability of banking institutions is the presence of an effective risk management system, as well as the financial stability of the corporate sector of the economy in terms of the fulfilment of assumed credit obligations. This study investigates the relationship between financial technology (Fintech) adoption, risk management practices and corporate profitability in Kuwait. The object of the study was 62 industrial enterprises registered on the stock market of Kuwait as of 2022. Methods of descriptive statistics, least squares method for estimating regression model parameters, and correlation analysis served as methodological tools of this study. This study aims to overcome the gaps in theoretical justification and empirically prove the existence of a relationship between the implementation of financial technologies and risk management methods. The results showed a positive correlation between the development of financial technologies and return on assets (correlation coefficient 0.6540), which indicates that implementing innovative financial technologies will contribute to improving the efficiency of banking institutions. The strong and positive correlation between the effectiveness of risk management and the profitability of business entities emphasizes the importance of responsible risk management practices for increasing banking institutions’ profitability. Based on the results of building a regression model, it was established that fintech has a significant impact on indicators of the return on equity of economic entities (р<0.050, t = 1.7700). The originality of this study lies in its focus on Kuwait and the Middle East as a whole and in its exploration of the relationship between corporate financial system profitability, risk management strategies and Fintech adoption. The use of innovative technologies (advanced analytics, artificial intelligence and blockchain) increases the effectiveness of risk management, which contributes to rational decision-making and a better understanding of the banking institution’s potential risks and development opportunities. This study contributes significantly to the existing literature by highlighting the relationships between financial technology innovation adoption, risk management and business financial performance in a market environment in the Middle East.