Positive and Negative Innovations on AI economic Perspectives in Modern Banking/Finance

Wojcik-Czerniawska, Agnieszka; Grzymala, Zbigniew Article Positive and Negative Innovations on AI economic Perspectives in Modern Banking/Finance ENTRENOVA - ENTerprise REsearch InNOVAtion Provided in Cooperation with: IRENET - Society for Advancing Innovation and Research in Economy, Zagreb Suggested Citation: Wojcik-Czerniawska, Agnieszka; Grzymala, Zbigniew (2025) : Positive and Negative Innovations on AI economic Perspectives in Modern Banking/Finance, ENTRENOVA - ENTerprise REsearch InNOVAtion, ISSN 2706-4735, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb, Vol. 10, Iss. 1, pp. 467-480, https://doi.org/10.54820/entrenova-2024-00036 This Version is available at: https://hdl.handle.net/10419/317979 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ 467 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 Positive and Negative Innovations on AI economic Perspectives in Modern Banking/Finance Agnieszka Wójcik-Czerniawska Warsaw School of Economics, College of Management and Finance, Poland Zbigniew Grzymala Warsaw School of Economics, College of Management and Finance, Poland Abstract The study reviews key findings on the impact of banking growth and innovation on economic development, particularly focusing on Asian economies where the financial sector is less developed. Using secondary data, it expands the scope of analysis to more specific elements of development. While banking innovation's theoretical effects are vast, empirical findings are often less clear, as they focus on specific businesses and channels. The study highlights the importance of understanding the current state of the financial sector when assessing its role in growth. Artificial intelligence (AI) and Big Data are increasingly used in economic forecasting, offering predictive and decision-making capabilities. The research concludes that greater economic freedom, especially in cross-border financial markets, does not always benefit companies. International financial freedom can hinder development, while domestic financial freedom may support it. As weaker banks struggle to finance startups, the study suggests that financial freedom may yield varied results for economic and business growth. In regions with underdeveloped financial markets, like Asia, banks play a crucial role in fostering growth. The article emphasizes the importance of financial technology in shaping these outcomes. Keywords: Positive and negative innovations, banking business, financial development, modern banking advancement JEL classification: O16, O31, G21 Paper type: Research article Received: 14 January 2024 Accepted: 28 May 2024 DOI: 10.54820/entrenova-2024-00036 468 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 Introduction Does banking improvement advance development? Hypotheses give differentiating replies to this inquiry. The fundamental job of a well-working monetary framework for mechanical advancement, later work has been demonstrated on the administrations of monetary delegates that assist assess and show business visionaries, group assets to useful usages, and differentiate dangers of creative tasks, promoting an advantageous impact of banking improvement on development. Then again, bank obligation financing deters firms from putting resources into creative undertakings since novel ventures have huge ex bet vulnerability which is unwished for banking to gather data under connection loaning. In such manner, trading improvement as well as dependence on bank support may affect contrarily on development. The expectation turns out to be more questionable as banking improvement prompts variations in other marketplace structures, like the serious scene of the financial area. Thusly, it is eventually an experimental inquiry regarding whether banking improvement advances development (Aghion and Tirole, 1994). Experimental investigations draw on different deductions from the hypotheses and ways to deal with responding to the inquiry from alternate points of view. While they offer blended proof, which reflects the hypothetical vagueness, the distinctions can be possibly clarified by the idea of the financial improvement they center around and the various channels they uncover. The review sums up the significant discoveries of the exact examinations that look at the impact of banking improvement on development and feature their general commitments to comprehension about the different jobs that the financial area plays in deciding advancement. Then, at that point, it will reevaluate the impact of banking advancement and development, stretching out the extent of examination to more grind components of development and to Asia marketplace where monetary business sectors are less evolved. As advancement is an essential wellspring of long haul financial development, the study will help the observational discoveries toward a precise outlook on the screen through which banks improvement influences monetary development and give potential arrangement suggestions to the arising markets. Figure 1 Digital finance inclusion and stability Source: Amore et al., 2013. 469 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 Banking growth and innovation Proof from previous work This section provides a detailed analysis of nine publications that investigate the influence of improved banking on creativity in an experimental setting. 1 Six articles look at public and municipal financial freedom, four of them look at intrastate and highway banking liberation in the United States from the 1970s to the 1990s, and two of them look at banking liberation in Italy from the 1980s. Two studies provide crosscountry confirmation of financial growth and turn-of-events (Atanassov et al., 2007). Finally, during the Great Recession, the essay investigates the relationship between bank failure and corporate development in the United States. It summarizes the most significant results of the research. While each of the studies looked at examines the effects of money inclusion on development, the results do not seem to give a complete understanding of the financial sector's role in fostering progress. A few facts become apparent. To begin with, different types of banking growth, such as international and highway financial liberation, and nationally increasing freedom in the United States, may have vastly different consequences on progress. Second, the impact of increased financial resources on development differs across nation. Third, the financial sector's function varies through time; as a result, the impact of banking development now, comparison to the Great Recession of a generation earlier, may have a range of development repercussions. In order to appreciate the multiple contentions, channels, and exact plans, as well as the generalizability and amount of application of the apparently diverse conclusions, the next sections should dig into such differences (Balsmeier, et al., 2017). This section contains a review of four papers that look at the impact of financial deregulation on US development. A period of financial liberalization occurred in the United States. There were various times from the 1970s through the 1990s when the limits were progressively eliminated. concentrating on banking and expanding businesses both inside and outside of states Each of the four articles pulls together a unique combination of data. Licensing metrics and pioneer qualities, as well as data from the US Patent and Trademark Office (USPTO), may be utilized to monitor progress. They include comparative exact plans like the difference in-contrasts approach, fixed-impact examination, and dynamic relapses, which use a few staggered floods of data. deregulatory events to determine whether banking development has a causal effect on business growth advancement. Regardless of the standard test subject, the papers do not give a consistent picture. When they revolve around distinct surges of deregulatory alterations, numerous sorts of findings companies, and diverse characteristics of monetary market expansion in the next paragraphs, you will find. It will focus on the main distinctions and consider their example companies throughout the talk directs in subtlety controversies, discoveries, and explanations. 470 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 Figure 2 Banking digital transformation Source: Berger, 2014. The study implies that there is a connection between monetary area liberation and financial progress via improvement. Rather than establishing a consistent positive relationship, it demonstrates the differences in the effects of intranational and highway financial liberties on the growth of young, corporate entities – intranational financial liberation slows development, whereas highway banking freedom accelerates it. The two types of liberation have, appropriately, resulted in different financial development consequences. The findings support a competitive model in which bankers with increasing business dominance as a result of intranational financial freedom are less willing to lend to innovative businesses, while bankers with decreased market strength as a result of highway financial liberation are now more willing to finance development. The results indicate how various types of monetary freedoms may have diverse effects on company development and the actual economy. This inquiry is connected to a paper that looks at the actual consequences of monetary improvement and the impact of bank mergers on monetary execution. According to the article, intranational financial liberation has increased the banking system's bargaining power over young, private companies because effective, massive banks hold a larger share of the overall industry. As a consequence, the effect of banking liberty on development is influenced by the impact of banks' market dominance. (Bhattacharya and Daouk, 2002) According to Berger, Hamid, and Klasen in 2004, rising capital market dominance diminishes development financing capacity while simultaneously raising development risk. Increased market power for bankers may potentially impede growth by pushing down business rents (e.g., Grossman and Halt 1987). Giving bankers additional dealing power, according to studies on interaction finance (e.g., Raman 1992), may assist them increase growth by expanding loans to connected consumers. The research proposes two testable hypotheses and backs them up with experimental data to reconcile these contradictory opinions. The number of licenses registered and awarded by the USPTO, as well as the number of references supplied to these licenses, are utilized as mediators for degree of development once again, with the number of licenses with lower and higher references broken down as percent of the risk of development. The primary test covers the years 1976 to 2006 and includes government views from 52 nations. Using a corrected counting technique, the study shows a negative (positive) association 471 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 between inter-state (highway) financial area liberation and the degree and danger of development, confirming the hypothesis. The study goes on to look at the impact of liberty on breaking new ground as a key component of economic success. Changes in banking sector dominance have a bigger impact on exploratory development than manipulative development, and the effects are likewise more severe for item development than for systems integration. Multichannel testing backs up these results, showing that changing bankers' bartering ability has a lopsidedly greater effects in areas with a higher concentration of small enterprises. To summarize, this paper uses state-year perceptions to investigate the impacts of financial liberalization on the degree and risk of development of new, secretive companies, finding that intrastate liberalization has a negative impact whereas highway liberalization has a beneficial one. After some liberations, various changes in the haggling force of bankers contribute to the impacts, which are primarily characterized by way breaking development and finally directed into financial expansion (Chava et al., 2013). In the banking sector In the chapter, we look at 2 studies that look at the impact of banking reforms on development in Italy during the late 1980s and early 1990s. By imposing district-level segmental limitations of different degrees of severity for banks, the deregulatory cycle alters the neighborhood stock of banking associations across place. The two studies rely on shrewd research information ("Indagine sulle Imprese Manufatturiere") that provide indisputable facts on advancement and diverse viewpoints enormous numbers of people of Italian social event organizations. They also use relative observational designs to examine the data, similar to how instrumental variable analysis is done. Regardless, the two publications focus on the many alterations that financial opportunity has brought to the Italian monetary framework and examine the influence on progress via several courses, similar to previous research that focuses on the impact of US banking opportunity (Demyanyk and Sørensen, 2007). Figure 3 Banking application development Source: Demyanyk and Sørensen, 2007. 472 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 Maria Herrera and Minetti in 2007: This article focuses on the data work of cash linked foundations (clearly banks) in describing advancement. The study shows a beneficial consequence of banks' knowledge on corporate progress via the channel of association propelling, incorporating fresh data for an instance of Italian get-together organizations and banking opportunity to the financial service sector as external factors associations. By further unravelling the influence, the study delineates that the expansion being produced originates with experience and the obtaining of outside generated degrees of development rather than in-lodging research (Friedman and Schwartz, 2008) In terms of the impact of bank data on advancement, hypothetical formation is far from conclusive. Moral risk concerns in the rising connection between banks and corporations, according to Rajan and Zingales (2001), are particularly acute new construction loans headways due to the difficulty in comprehending and tracking these movements, as well as ludicrous risk-taking motivations for firms. As a result, bank information might play a critical role in resolving the problem while also extending loaning to fund new initiatives. In any case, bank crediting hold-up concerns (i.e., dangers Bank is refusing to extend credit and reconsider commencing game plan circumstances) may deter organizations from forming, since fresh advancements are particularly vulnerable to the problem. As a result, given the dubious concerns regarding the influence of bank data on progress, this research aims to bring information into the picture. The creators, in particular, make extensive use of layout data, which allows them to assess certain stages of development and appoint intermediaries for bank data. They gather information on the kinds of advancements that are taking place (e.g., item vs. process) in the same way as R&D does, and they define the most important metric of bank data as the relationship for bank & firm (a customary static measure at an attribute of time). They provide multiple instrumental components to detect external factors to the nearby heap of banking connections and to address indigeneity concerns in the link between credit relationship length and improvement. The amount of branches produced freely by officeholder banks and part banks are the two tools. The tools seem to be exogenous, given how they are linked to the financial district's opportunity design in Italy during the final half of the 1980s, which eliminated traditional entrance constraints to shifting degrees across areas. The unique heading of the involvement between banking opportunity and crediting affiliation does not jeopardize the legitimacy of the instruments. Additionally, the creators do extra testing to evaluate whether any progress is being made. They agree that more substantial shows and the acquisition of new breakthroughs are more closely linked to progress than inside research. In this approach, the article incorporates Italy's monetary independence in order to understand the causal influence of banks' knowledge on company progress, as proxied by the crediting connection with enterprises. The disclosures are in line with banks' information-gathering practices, which help to mitigate moral risk concerns in the lending relationship while also boosting funding for future loans (Herrera & Minetti, 2007) Benfratello, Schiantarelli, and Sembenelli in 2008: The influence of neighborhood banking development on Italian enterprises' creative efforts throughout the 1990s is examined in this article. The likelihood of a cycle improvement rises as banking progresses, and the impact is more pronounced for more inconspicuous organizations as well as firms in well-developed initiatives. During development, the pay awareness of fixed hypothesis also decreases, resulting in more important R&D theory, particularly for small businesses. 473 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 One of the earliest studies to go down this path, this one looks at how a change in banking practices can affect a company's bottom line. Since various speculative channels have divergent visions for the organization and uncertain estimates remain open through each express channel (e.g., challenge), the paper portrays the inquiry as a limit observational issue and reveals explicit insight into more unassuming businesses that are more reliant on neighborhood money and will undoubtedly benefit from banking development. This study looks at how the degree of banking headway varies among locations and how that affects headway. The creators discover that local financial improvement has a significant impact on firm-level turn of events, particularly for process headway, by displaying the possibility of introducing enhancements as a component of branch thickness. They also notice that the impact is stronger for small businesses and enterprises operating in the state-of-the-art area. To overcome indigeneity problems, the researchers employ the extent of banking progress in 1936, during the which was before period of banking still nascent, as a tool in the analysis and come up with comparable abstract conclusions. Finally, the designers assess the immediate impact of banking upgrade on progress data sources such as research and development (R&D) and capital expenditures, which is also more relevant for small businesses. Overall, this research indicates that banking progress has a fundamental beneficial influence on both data and the aftereffects of level of firm events, with a stronger result on course improvement, lesser businesses, and firms in state-of-the-art locations. The end result is a business for the monetary region's financing situation that works with companies' financial ambitions in taking an interest in inventive activities. Improvement of the Banking Sector Worldwide Proof Cross-country comparisons of the impact of financial intermediation are summarized below on progress in this section. Model confirmation (making vs made countries), appraisal level (firm versus industry level), and observational plans (relationship rather than perceiving evidence) differ across the two papers, activating isolating shuts on the influence of banking improvement. Ayyagari, Demirgüç-Kunt, and Maksimovic in 2011 According to this study, acceptance of unknown money is linked to more essential business progress in rural areas. Bank lending, in particular, funds innovative activities like product launches, leaps in technology, and new development procedures. While the exposes do not suggest a direct link, they do emphasize the significant influence of banking improvement for advancement through a subsidized channel. Among the huge content on the essential components for assisting new growth, little is understood about how economic conditions, such as consent to back, effect progress, a vital channel for moving development, particularly in developing nations. This article fills the gap by examining the impact on private enterprises' creative activities in 47 developing economies. The producers want precise data from the World Bank Enterprise Surveys for over 19,000 businesses. They assess creative methods from a variety of perspectives, including focused improvement activities such as the presentation of new items and advancement, as well as additional forms of promotional actions improvement, such as information initiatives via endorsement and reevaluation (Ayyagari and Maksimovic., 2011) 474 ENTRENOVA - ENTerprise REsearch InNOVAtion Vol. 10 No. 1 AI in Modern Banking in Finance Commercial and retail banks, as well as fintech companies and investment firms, are transforming their business models with artificial intelligence. Banking can benefit from AI by better protecting their customers' accounts, ensuring payments, improving returns on investments, and personalizing content and investment recommendations. Fraud detection, portfolio optimization, sales and marketing enablement were also among the top AI-enabled benefits observed by executives in the global financial sector "AI State of the Industry". Further, one out of three professionals in financial services believes AI could boost their company's revenue by at least 20 percent. Using artificial intelligence reduces operating costs because it automates insurance claims processing, adding speech recognition technology to call centers for call transcriptions, and other processes that are currently done manually. Hsu, Tian, and Xu in 2014: For a long time, the undeniable effects of cash-related market movement on the economy were separated. This study adds to the existing theory by investigative to the various things of significant worth organization regions and on the financial framework on mechanical development, which is a major basis of cash-related events, and identifying 2 financial stations through which the impact happens. From 1976 to 2006, 32 developed and rural countries are represented in the essay. A board assessing the causal effect of monetary market development on progress uses a fixed-impacts method. The designers employ USPTO patent data to track patent, citation, originality, distortion, and R&D. When looking at a model at the country-business-year level, the designers notice that the advancement of the value market has a positive influence on the advancement of associations, however the advancement of the It's a different story in the banking system. The unfavorable result of the credit industry is more dependent on experiences with more evident outside cash related dependency and a significantly advanced speed rise. As a result, the loan market is clearly not an appropriate subsidizing option for creative businesses that depend on outside capital. The results lend credence to the claims that: 1) In a banking-based economic system, tangible evidence of value are required (Rajan & Zingales, 2001), which could restrict the usefulness of bank funding for major creative endeavors (Beck Levine, 2002) 2) accountability Debt financing isn't a good fit for creative initiatives because it entails more risk, less certainty in terms of profit and results, and more usage of resources that aren't necessary to the project's success. By reducing the amount of credit available to fund innovative endeavors this study confirms, across countries, that expansion of the credit/bank market retards the advancement of mechanical technology. (Hsu and Xu, 2014).