Sustainable Innovation and Firm Performance Driven by FinTech Policies: Moderating Effect of Capital Adequacy Ratio

Abstract

This study empirically investigated the role played by government policy in the financial industry in promoting sustainable innovation, business performance, and risk management. An original dataset, comprising data from the Taiwan Economic Journal (TEJ), Taiwan Patent Search System, and company annual reports from the period 2015–2019 was used to analyze the effects of government policy on the financial industry in Taiwan. The research results showed that a firm’s sustainable commitment is conducive to its business growth and does not increase its risk in the financial industry. The financial industry can report on FinTech news that highlights business growth, while companies with high capital adequacy rates are better equipped to manage the risks associated with innovation commitment. Financial companies are suggested to engage in sustainable innovation and thus improve their profitability. In addition, policymakers should mandate that financial companies increase their capital adequacy ratios, improve their risk-bearing capacity, and maintain financial market stability.

1. Introduction

With the development of financial electronic or financial management information systems and mobile technology in financial companies, financial technology (abbreviated as ‘FinTech’) emerged after the global financial crisis in 2008 via combining e-finance, Internet technology, social networking services, social media, artificial intelligence, and big data analytics. The application of FinTech provides consumers with diversified and efficient financial services, improves customer experience, and affects traditional business models and financial structures [1,2].

The speed of new FinTech products and services depends on the formation of an ecosystem, which is an important factor in driving technological innovation and in helping to build increasingly efficient financial markets and systems [3]. The FinTech ecosystem and its stakeholders have grown rapidly in recent years due to significant investment in the FinTech sector. The global investment in FinTech has increased from USD 1.8 billion to USD 19 billion between 2010 and 2015. In the past, most FinTech investments were made in European countries such as the U.S., the U.K., and Germany. However, since 2016, the rise of China has also seen this country become a leading force in FinTech, which means that the FinTech sector is continuing to expand to all regions of the world [4].

According to the global FinTech-enabling regulations database by [5], the number of countries with identified FinTech-specific regulations is as follows: 197 out of 200 countries have made digital-banking-related policies, 75 out of 200 countries have made innovation-facilitation-related policies, and 25 out of 200 countries have made policies related to cryptocurrency; these statistics show that a FinTech environment has gradually been constructed and controlled through rules set around the globe. Due to this gradual improvement of financial technology policies, the amount of related investment has likewise steadily increased. Indeed, the amount of funds invested in FinTech around the globe has increased year by year. According to [6], for each consecutive year in the period from 2018 to 2021, the deal value was USD 148.6 billion, USD 213.8 billion, USD 124.9 billion, and USD 210.1 billion, respectively. Though the COVID-19 pandemic slowed down the extent of this investment, this level of funding still makes the development of financial technology full of potential. To minimize the rapid development of innovation which derives financial risk while, at the same time, maximizing its social profit, government endeavors to use policies have enabled FinTech to flourish in recent years; its development is inseparable from the formulation of policies.

Scholars of innovation management have long maintained that R&D investments are critical in the firm’s strategic decision-making [7]. Prior studies reveal that policies involving R&D investments impact firm performance through exercising control over financial management and actions [8]. While R&D investments are obligated to monitor financial risks to ensure that they act in operations, empirical evidence regarding the association between R&D investments and controlling effects of financial control is far from conclusive in financial innovation. However, the literature shows that despite the surge in FinTech, banks hold alternative opinions regarding their impact on bank performance and risk. Some scholars have positive attitudes towards financial innovation and advocate that financial innovation can improve performance or efficiency, while other scholars maintain that FinTech will increase risk. Study [9] pointed out that the key factor in the US subprime mortgage crisis in 2008 was an overconfidence in financial innovation and new structures.

However, the global financial crisis was due to the development of financial innovation in the United States, which sold a variety of complexly structured financial products to investors from various countries through the global capital market, resulting in the financial crisis of many international banks which, in turn, caused the public to distrust financial companies. This led to a scenario whereby banks’ risk control ability became highly scrutinized. In 2007, the Basel Committee on Banking Supervision of the Bank for International Settlements issued the Basel Accord, which established a minimum capital adequacy ratio of 8% after considering market risk, credit risk, and operational risk; this agreement is valued by the supervisory agencies of various countries. It is hoped that the supervision of capital adequacy ratios will enable the financial market to develop soundly and stably, proving to be resilient in the face of future crises [10].

This study contributes to the global financial literature through examining the interplay between capital adequacy ratio, R&D activities, business performance and risk. The findings of this research offer valuable insights for policymakers, financial institutions, and researchers across the globe, emphasizing the importance of fostering innovation while maintaining financial sustainability in an increasingly interconnected and dynamic financial industry. Government policy support is a key element of sustainable innovation. Since the financial crisis, various countries have actively provided a favorable regulatory environment for the development of FinTech according to their country’s economic development plans and policies, in order to stimulate FinTech application and promote global financial competitiveness [1]. The capital adequacy ratio of financial service firms is critical to moderate innovation involvement and corporate sustainability in terms of firm profitability and risk management. This study confirms the results of prior research that emphasized the importance of institutional regime and certain organizational characteristics such as innovation and involvement, which are critical to corporate sustainability.

2. Literature Review

2.1. FinTech and Its Literature Development

This research analyzes the characteristics of the literature which focuses on FinTech via bibliometrics using the Web of Science database, according to the OECD definition of FinTech as technological innovation in financial services. Insurtech is regarded as a branch of FinTech in the insurance sector [11]. This investigation has been conducted using financial innovation, FinTech and Insurtech as keywords. Because FinTech innovation emerged after the 2008 global financial crisis [1], we chose 2008~2019 as our survey period.

Table 1. The Literature Growth of Financial Innovation.

Publication Years	Record	%	Citations
2008	16	4.02	6
2009	14	3.52	16
2010	13	3.27	43
2011	17	4.27	65
2012	21	5.28	117
2013	25	6.28	209
2014	24	6.03	252
2015	39	9.80	370
2016	29	7.29	468
2017	45	11.31	608
2018	69	17.34	876
2019	86	21.61	1489

lists the amount of literature and citations related to financial innovation, showing a steady increase year by year from 2008 to 2019.

Table 2. Distribution of Document Types.

Document Types	Record	%
article	335	84.17
editorial material	37	9.30
review	13	3.27
book review	8	2.01
proceedings paper	8	2.01
early access	4	1.01
news item	2	0.50
book chapter	1	0.25
correction	1	0.25
letter	1	0.25
meeting abstract	1	0.25

indicates the results of document types. Most document types are articles (84.17%); other types include editorial materials (9.3%), reviews (3.27%), book reviews (2.01%), and conference papers (2.01%).

Moreover,

Table 3. Distribution of Top Five Areas.

Research Areas	Record	%
business economics	279	70.10
environmental sciences ecology	35	8.79
engineering	30	7.54
computer science	29	7.29
government law	29	7.29

shows the top five major research areas. The fields with the largest five proportions in the literature are business economics (70.1%), environmental and social sciences (8.79%), engineering (7.54%), information science (7.29%), and government law (7.29%). Furthermore,

Table 4. Distribution of Top Five Countries.

Countries	Record	%
USA	121	30.40
England	64	16.08
Peoples R china	60	15.08
Spain	24	6.03
Netherlands	19	4.77
South korea	19	4.77
Australia	18	4.52
France	18	4.52
Germany	16	4.02
Canada	13	3.27
Italy	11	2.76
Singapore	10	2.51
Taiwan	10	2.51

refers to the ranking of financial innovation literature published in different countries. The top one is the United States with 121 (30%); followed by the United Kingdom (16%); China (15%); Spain (6%); the Netherlands (4.7%); and Taiwan, with 10 articles (2.5%).

2.2. Sustainable Commitment

This is a crucial moment to delve into sustainability and ESG topics, given the current outbreak of war in Ukraine and Russia. To address the problem of insufficient energy and resources, enterprises must not only source resources in formidable situations but also maintain their long-term development goals [12]. This can be achieved through adopting or developing more efficient and technologically based methods [13]. Therefore, enterprises should carefully strike a balance via measuring different approaches in detail. A recent study suggests that a strong risk management culture can enhance the efficiency of the operating system [14]. Meanwhile, improving communication systems within companies, especially in project information tasks, is vital. This can be achieved through refining motivational technologies and using game theory tools to stimulate employee activities, particularly within energy company communication departments, when addressing ESG and sustainability problems [15].

According to past literature, the literature suggests that in order for firms to profit from corporate social responsibility (CSR) activities, they need to increase CSR awareness, inhibit consumer skepticism about CSR claims, and demonstrate high CSR performance. Therefore, businesses that engage in genuine CSR activities may be more likely to succeed in their sustainability efforts and gain the trust of consumers [16]. Additionally, the literature may encourage businesses to be more transparent about their sustainability practices and avoid engaging in CSR-washing tactics for developing sustainable innovation [16]. Anyway, financial innovation for sustainable development has always been the driving force behind the advancement of FinTech and economic development. It has contributed to improvement in the quality and diversity of banking services, as well as promoting risk diversification, improving markets, and increasing efficiency and economic growth [17]. Refs. [18,19] both argued the impacts of the internet on banking performance. The former found that in small commercial banks in the U.S. that adopted online banking, depositors were more willing to use paid services due to increased convenience and increased bank profitability. The latter suggested that banks using online platforms as a payment channel gradually reduces overhead costs such as staffing, marketing and IT costs, reducing costs and improving bank profitability. In [18], it was found that pure online banking has a high-profit margin, while the gap between the profitability of traditional banks and traditional banks is narrowed with the expansion of scale. The authors of [20] suggested that banks that innovate purely online have a significant impact on their financial performance, while several other studies have similarly demonstrated that banks’ performance increases after financial innovation.

Some scholars hold negative viewpoints on innovation inputs. In fact, [9] indicated that the key factor in the U.S. subprime mortgage crisis in 2008 was overconfidence in innovation inputs and new structures, while [21] emphasized innovation growth and vulnerability and found that innovation inputs exacerbate bankruptcy risk. In [22], it is argued that the development of securitization and derivative financial products has a negative impact on financial stability, which increases the overall default risk of European financial companies. In addition, [23] found that purely online banking reveals difficulties in managing liquidity risk. Therefore, based on the above arguments, this study proposes the following hypotheses:

Hypothesis H1.

A financial firm’s sustainable commitment has a positive relationship with its business performance.

Hypothesis H2.

A financial firm’s sustainable commitment has a positive relationship with its business risk.

2.3. Financial Innovation

Financial innovation has been found to disrupt carbon dioxide emissions (CO₂e) and stimulate pollution [24]. Moreover, financial innovations have a negative association with natural resources; at the same time, they have been seen as substantial factors for the financial services industry [25]. On the other side, innovations help improve the quality and variety of banking services [26]; there is supporting evidence that financial innovation increases bank growth and supports financial deepening. According to past literature, research and development (R&D) expenditure is a necessary condition for innovation activities, and it is the most influential variable on the innovation ability of a firm [27]. In addition, financial innovation can play a role in solving environmental issues through creating new financial instruments and markets that incentivize environmentally friendly practices [28]. This study followed the viewpoint taken by [21], using R&D expenditure as an indicator of innovation input to verify the relationship between innovation input, bank growth, and economic growth. With the steady growth of investment in FinTech R&D, financial companies have set up FinTech R&D departments to assist in the promotion of this facet of FinTech. In addition, these R&D departments reveal their intention to innovate via publishing news related to financial technology and applying for financial patents when developing proprietary technologies in financial services or financial applications.

Ref. [29] found that there is a close relationship between social media, traditional media, and company stock performance; namely, social media can provide a timely assessment of company performance and can predict its future business value. It is the more open financial markets that enable FinTech to develop rapidly as one of the key innovation strategies to foster new services [30]. Ref. [31] constructed a dynamic prediction model of public sentiment through utilizing the content of financial blogs and news articles, integrating social network and behavioral financial characteristics, and using big data analysis to evaluate current stock and financial reviews, with the ultimate goal being to predict changes in stock indexes. Ref. [32] explored the role of FinTech patents in the financial services industry and analyzed their impact on performance, adding machine learning analysis. It was found that FinTech patents could improve the profitability of the financial services industry and encourage more investment in the invention of FinTech patents to improve business performance. Ref. [33] elucidates that financial innovations have a direct and indirect bearing on environmental degradation via economic globalization; however, the deployment of environmental technologies provides a positive offset, especially in cases where pollution stems from imported technologies. A systematic literature review pointed out that regarding regulation perspectives, lawmakers must balance financial regulation to promote innovation, stability, and consumer protection among financial institutions and other market players [34]. Therefore, this study proposes the following hypotheses:

Hypothesis H3.

Those financial firms that release financial innovation news have positive relationships between sustainable commitment and business performance.

Hypothesis H4.

Those financial firms that apply financial patents have positive relationships between sustainable commitment and business performance.

2.4. Capital Adequacy Ratio

The capital adequacy ratio is the ratio of own capital to risk-laden assets, and it measures the ability of own capital to bear risks and has a direct effect on risk management. Following the global financial crisis, countries began to pay attention to the financial supervision and risk control of financial companies. The Basel Accord provides capital adequacy ratio standards for supervisors in various countries and advocates financial companies to strengthen risk management so that the financial market can develop soundly and stably and be able to adapt in the face of crises.

This study used the capital adequacy ratio to moderate the relationship between R&D expenditures and business performance and risk. In terms of the characteristics of capital adequacy ratio, a financial company with a higher capital adequacy ratio means that its capital structure is stable, while the more risk it can bear also means that it possesses good profitability. Past studies have investigated the relationship between capital adequacy ratio and financial performance and risk. Ref. [35] took 40 Taiwanese banks from the period between 1993 and 2000 as a sample and found that the higher the capital adequacy ratio of commercial banks, the better the operating performance. Ref. [36] investigated European banks’ capital adequacy ratio and found it only holds significance during periods of low investment, during which it has a substantial and negative impact on a bank’s financial performance, reducing it by 10%. Innovations in FinTech within a bank serve to mitigate its risk exposure through enhancing operating income and bolstering the capital adequacy ratio [37]. Ref. [38] pointed out that deposits predominantly constitute the banks’ funding source, and the substantial and positive influence of capital adequacy ratio on the lending and borrowing practices of banks aligns with previous literature. Additionally, Ref. [26] pointed out that banks with higher-equity capital have a higher chance of survival in both times of crisis and normality, which also means that they are less risky. Therefore, this study proposes Hypotheses 5 and 6 as follows:

Hypothesis H5.

Financial companies’ capital adequacy ratio will positively moderate sustainable commitment and business performance.

Hypothesis H6.

Financial companies’ capital adequacy ratio will negatively moderate sustainable commitment and business risk.

Overall, this study depicts the research framework and the relevant hypotheses in Figure 1. Specifically, in order to stimulate FinTech development and application, R&D expenditure positively affects corporate sustainability in terms of business performance and risk level. Furthermore, capital adequacy ratio has mixed moderating effects between R&D expenditure, business performance, and business risk.

3. Research Method

3.1. Research Model

This study adopts a panel regression model to explore the determinants of the financial industry’s business performance and risk. The regression model of the tracking data established in this study is as follows:

${Business Performance}_{it}$ is the operating performance of the i-th sample in the t-th year, taking Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), and Earnings Per Share (EPS) as indicators. $F{I}_{it}$ is for sustainable commitment, using (${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$) as representative. $x_{it}$ represents control variables, including enterprise size (SIZE), number of employees (EN), cost-to-income ratio (CostInc), and debt ratio (DebtTA).

${Business Risk}_{it}$ is the business risk of the i-th sample in the t-th year, with Z-Score as the indicator. $F{I}_{it}$ stands for sustainable commitment, using (${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$) as representative. $x_{it}$ represents control variables, including enterprise size (SIZE), number of employees (EN), cost-to-income ratio (CostInc), and debt ratio (DebtTA). Additionally, variables of R&D expenditure (${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$), enterprise size (SIZE), and number of employees (EN) are all taken as natural logarithms.

3.2. Research Samples and Data Sources

This study is defined in accordance with Article 2 of the “Organic Act Governing the Establishment of the Financial Supervisory Commission” of Taiwan; the research objects include financial holding companies, financial reconstructing funds, central deposit insurance companies, banking, securities, futures, insurance, electronic financial transactions, and other financial services. We excluded the securities industry because the Taiwanese securities industry is small, and securities firms are not active in digital transformation [39]. Therefore, this study takes financial holding companies, banking, and insurance industries as its research objects.

The sample for this study was selected from the period 2015 to 2019 as a sample of publicly issued banking, insurance, and financial holding companies in Taiwan, with a total of 99 companies in the financial services industry. However, this study examined the role played by government policy in the financial industry in promoting sustainable commitment, business performance, and risk management. The initial year of FinTech was 2015 in Taiwan; the financial industry was encouraged to invest in financial innovation until the challenges of the COVID-19 epidemic in 2020. Therefore, the data period from 2015 to 2019 is valuable research data and fits the standards of at least of a period of five years in the samples for a country [40]. The financial data of the selected sample companies are from the “Taiwan Economic Journal (TEJ)” database. However, due to the lack of some R&D expenditures in the database, the annual report was manually scrutinized for collection, and the final number of valid samples was 220. Regarding the measurement of innovation activities, the R&D center sample is based on the data of the R&D expenditure of the enterprise during the research period, which means that it has an R&D center. Secondly, the source of financial patents was the “Taiwan Patent Search System”, and the classification used was G06Q. Third, for news related to financial development and application, the “TEJ Event” system was used for news retrieval; “FinTech” and “advancement” were used as keywords to select samples with innovative intentions for research.

However, there is a time lag between R&D investment and successful outcomes, as well as between the application of research findings [40]. Therefore, the benefits of research and development investment will be realized after a period of time, exhibiting a deferred effect. Consequently, this study uses the research and development expenditure with a one-year delay to measure the effect of financial institutions’ investment in R&D activities on performance and risk in the following year. In order to test the hypothesis, the R&D expenditure deferred for one year was used as a measurement.

Furthermore, for the purpose of examining financial innovation in Taiwan, as one of the top 25 largest economies in the world, Taiwan possesses robust exports and foreign exchange reserves. This economic strength forms the foundation for the country’s significance in the global financial industry, as it facilitates international trade and investments. In turn, this attracts foreign banks and financial institutions, fostering a dynamic and competitive financial landscape. Furthermore, Taiwan’s Financial Supervisory Commission (FSC) has demonstrated a commitment to fostering financial innovation through policies and initiatives. The FinTech Development Strategy White Paper and the Financial Regulatory Sandbox are excellent examples. These efforts create a conducive environment for the growth of the financial industry and encourage banks and financial institutions to adopt innovative solutions and services.

3.3. Research Methods

Followed the argument of [21], this study adopted one-year deferred R&D expenditure to measure the performance and risk effects of financial companies’ R&D investment in the following year. Next, empirical analysis with samples of innovative behaviors was conducted, and the data of financial development and application-related news and financial patent applications were extracted to understand the impact of financial development and application on business performance and risk. To analyze the data and examine the moderating effects in the model, this study employs the PROCESS macro for SPSS, which is well-suited for conducting multiple regression analysis, moderation analysis, and hypothesis testing. The analysis leverages Model 1 in the PROCESS framework, with 5000 bootstrap resamples to obtain robust estimates of the effects. Through using the PROCESS macro, this study can effectively analyze the direct and interaction effects of R&D expenditure, financial innovation news releases, financial patent applications, and capital adequacy ratio on business performance and risk, while also examining the conditional effects of these variables at different levels of the moderating variable. This approach provides a comprehensive understanding of the relationships among the variables in the study and helps to test the proposed hypotheses with greater accuracy and interpretability [41].

In addition, this study further tested whether results were robust across different ways of analyzing the data. First, the paper examined if the results changed when we analyzed only the text from before the method section. The results were similar regardless of whether we analyzed the entire article or just the text before the method section.

4. Empirical Results

4.1. Descriptive Statistics

Table 5. Descriptive Statistics.

Variable Name	N	Average	SD	Minimum	Maximum
Performance
ROA	220	0.93	1.11	−0.8	6.59
ROE	220	7.53	5.51	−30.12	28.81
NPM	220	25.71	14.63	−13.26	63.54
EPS	220	1.83	1.97	−1.68	13.82
Risk
Z-score	220	1.82	1.15	−0.2	6.56
FI
${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$	220	4.18	0.93	0.00	5.71
X
SIZE	220	8.92	0.67	7.19	9.85
EN	220	3.6	0.48	2.24	4.6
CostInc	220	0.33	0.16	0.01	0.73
DebtTA	220	89.5	9.59	51.88	98.16

is a narrative statistics table of a selection of variables throughout the research, showing that the average of the natural logarithms of R&D expenditure, total assets, and number of employees are 4.18%, 8.92%, and 3.6%, respectively. After restoring the data, the R&D expenditure was 75,072 (thousand NTD), the total assets amounted to 172,954 (thousand NTD), and the number of employees was 6513 (persons). In terms of measuring performance indicators, the average value of return on assets, return on equity, net interest rate, and earnings per share are 0.93%, 7.53%, 25.71%, and 1.83%, respectively. The risk indicator Z-Score averaged 1.82%, while the average cost-to-income ratio and debt ratio were 0.33% and 89.5%, respectively.

4.2. Empirical Results

The regression results of the tracking data of financial holding companies investing in FinTech innovations and their business performance are shown in

Table 6. Regression Results of R&D Expenditures and Business Operations.

	ROA		ROE		NPM		EPS		Z-Score
	Coeff	p	Coeff	p	Coeff	p	Coeff	p	Coeff	p
Constant	9.953	<0.001 ***	7.067	0.178	−93.23	<0.001 ***	4.181	0.015 **	−3.261	0.001 **
${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$	0.07755	0.077 *	1.169	0.002 **	2.664	0.001 **	0.453	<0.001 ***	0.239	0.001 **
SIZE	−0.293	0.069 *	−1.46	0.309	28.443	<0.001 ***	0.439	0.347	1.137	<0.001 ***
EN	0.446	0.004 **	5.47	<0.001 ***	−23.543	<0.001 ***	0.981	0.03 **	−0.821	0.001 **
CostInc	−0.301	0.19	3.533	0.085 *	49.372	<0.001 ***	−2.94	<0.001 ***	4.453	<0.001 ***
DebtTA	−0.092	<0.001 ***	−0.137	0.047 **	−0.875	<0.001 ***	−0.12	<0.001 ***	−0.051	<0.001 ***
${\mathrm{R}}^2$	0.767		0.253		0.491		0.381		0.435
N	220		220		220		220		220

Notes: * p < 0.1, ** p < 0.05, *** p < 0.001.

. In terms of operating performance, the R&D expenditure invested in the past year was reflected in the performance of the next year, and the results of R&D expenditure on each indicator of operating performance were positively correlated and have a statistically significant effect. In addition, the return on shareholders’ equity and earnings per share were significant, which means that financial companies’ R&D activities were beneficial to shareholder returns. This outcome supports Hypothesis 1, suggesting that a financial firm’s sustainable commitment positively influences its business performance, leading to improvements in shareholder returns and profitability. However, the return on assets (ROA) is less significant (p = 0.77), which may indicate that the relationship between sustainable commitment and profitability is not as strong in this aspect. This result is worth further investigation, as it deviates from the findings of some previous studies [18].

At the risk analysis level, sustainable commitments were significantly positively correlated with Z-Score, which means that the R&D investment of financial companies can reduce their risks without affecting the stability of operations. Moreover, the scale and risk of financial companies were significantly positive, indicating that larger financial companies have better risk management because they have more professionals and expertise and take fewer risks than small-scale financial companies. The debt ratio and Z-Score were significantly and negatively correlated, indicating that financial companies with low debt ratios have stable financial structures and were less affected by risks during financial development and application. Although this result was significantly positively correlated, it contradicted Hypothesis 2. This observation aligns with previous literature, which has documented the negative consequences of sustainable commitment in risk management [9,21,22,23].

In examining the innovation behavior of financial companies,

Table 7. Regression Results of Financial News and Business Operations.

	ROA		ROE		NPM		EPS		Z-Score
	Coeff	p	Coeff	p	Coeff	p	Coeff	p	Coeff	p
Constant	8.106	<0.001 ***	11.957	0.453	84.081	0.059 *	14.599	0.007 **	23.717	<0.001 ***
${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$	0.051	0.065 *	0.625	0.092 *	1.145	0.263	0.14	0.254	0.085	0.349
SIZE	0.251	0.028 **	4.248	0.006 **	35.681	<0.001 ***	1.522	0.003 **	1.274	0.001 **
EN	−0.207	0.104	−1.807	0.289	−38.619	<0.001 ***	−0.044	0.938	−1.002	0.019 **
CostInc	−0.316	0.065 *	−1.816	0.428	5.33	0.401	−4.399	<0.001 ***	1.799	0.002 **
DebtTA	−0.098	<0.001 ***	−0.408	0.007 **	−2.62	<0.001 ***	−0.278	<0.001 ***	−0.329	0.004 **
${\mathrm{R}}^2$	0.573		0.182		0.703		0.5		0.687
N	85		85		85		85		85

Notes: * p < 0.1, ** p < 0.05, *** p < 0.001.

shows the regression results of publishing news related to financial development and application. The investment in R&D expenditure was positively correlated and significant between the return on assets and the return on shareholders’ equity. This finding aligns with the studies by [29,31], which demonstrated the importance of social and traditional media in assessing and predicting company performance. Consistent with Hypothesis 3, financial companies that intended to engage in financial development and application exhibited higher profitability when they released financial innovation news.

Table 8. Regression Results of Financial Patents and Business Operations.

	ROA		ROE		NPM		EPS		Z-Score
	Coeff	p	Coeff	p	Coeff	p	Coeff	p	Coeff	p
Constant	14.798	<0.001 ***	27.998	<0.001 ***	−75.874	0.009 **	12.629	<0.001 ***	1.467	0.607
${\mathrm{R}\&\mathrm{D}}_{\mathrm{t}-1}$	0.068	0.041 **	0.85	0.023 **	1.37	0.371	0.112	0.386	0.193	0.22
SIZE	−0.251	0.12	−1.317	0.461	38.617	<0.001 ***	−1.69	0.01 **	1.795	0.024 **
EN	0.52	0.003 **	4.173	0.027 **	−36.847	<0.001 ***	3.052	<0.001 ***	−1.418	0.078 *
CostInc	0.774	0.004 **	8.515	0.004 **	55.446	<0.001 ***	−7.576	<0.001 ***	5.018	<0.001 ***
DebtTA	−0.155	<0.001 ***	−0.327	0.005 **	−1.47	0.003 **	−0.047	0.233	−0.145	0.004 **
${\mathrm{R}}^2$	0.957		0.504		0.682		0.682		0.452
N	47		47		47		47		47

Notes: * p < 0.1, ** p < 0.05, *** p < 0.001.

shows the empirical results of financial companies that reflect R&D achievements in FinTech of the organizations that applied for financial patents. It shows that the performance of financial companies applying for FinTech patents has a significant positive correlation between the return on assets and the return on shareholders’ equity, but it is not significant in terms of risk.

This result supports the findings of [32], which highlighted the positive impact of FinTech patents on the profitability of the financial services industry. In line with Hypothesis 4, these results indicate that financial companies should actively engage in financial technology R&D and apply for patents to improve their business performance. However, the relationship between R&D expenditure and risk remains inconclusive and requires further investigation.

4.3. Analysis of Moderate Effect of Capital Adequacy Ratio

Table 9. Moderate Effect of Capital Adequacy Ratio on R&D, ROA, ROE, and NPM.

Variable	ROA					ROE					NPM
	Coeff	SE	p	LLCI	ULCI	Coeff	SE	p	LLCI	ULCI	Coeff	SE	p	LLCI	ULCI
${R\&D}_{t-1}$	0.1427	0.0703	0.0435 **	0.0042	0.2812	1.3105	0.4526	0.0042 **	0.4184	2.2025	3.0397	1.0138	0.003 **	1.0415	5.0379
$\mathrm{C}\mathrm{A}\mathrm{R}$	0.003	0.0014	0.0334 **	0.0002	0.0058	−0.0181	0.0091	0.049 **	−0.0361	−0.0001	0.058	0.0204	0.005 **	0.0177	0.0983
${R\&D}_{t-1} \times \mathrm{C}\mathrm{A}\mathrm{R}$	0.0001	0.0004	0.8467	−0.0006	0.0008	0.0055	0.0023	0.0181 **	0.001	0.0101	−0.0241	0.0052	<0.001 ***	−0.0344	−0.0139
$R^2$	0.4842 ***					0.1369 ***					0.386 ***
$R^2$-chng	0.0001					0.0225 **					0.0607 ***

N = 220; 95% confidence interval; LLCI:low level confidence interval, ULCI:upper level confidence Interval; 5000 bootstrap samples; ** p < 0.05, *** p < 0.001.

and

Table 10. Moderate Effect of Capital Adequacy Ratio on R&D, EPS, and Z-Score.

Variable	EPS					Z-Score
	Coeff	SE	p	LLCI	ULCI	Coeff	SE	p	LLCI	ULCI
${R\&D}_{t-1}$	−0.1898	0.1202	0.1159	−0.4268	0.0472	0.3719	0.0912	0.0001 ***	1.921	0.5517
$\mathrm{C}\mathrm{A}\mathrm{R}$	−0.0261	0.0024	<0.001 ***	−0.0309	−0.0213	0.0051	0.0018	0.0058 **	0.0015	0.0087
${R\&D}_{t-1} \times \mathrm{C}\mathrm{A}\mathrm{R}$	0.0075	0.0006	<0.001 ***	0.0063	0.0088	−0.0017	0.0005	0.0002 ***	−0.0027	−0.0008
$R^2$	0.5249 ***					0.1963 ***
$R^2$-chng	0.3262 ***					0.0515 ***

N = 220; 95% confidence interval; LLCI: low level confidence interval, ULCI:upper level confidence Interval; 5000 bootstrap samples; ** p < 0.05, *** p < 0.001.

examine the moderating effect of the capital adequacy ratio on the relationship between R&D expenditure and business performance and risk. The interaction effect of R&D expenditure and the capital adequacy ratio does not have a significant moderating effect on ROA. However, the results reveal significant moderating effects of the interaction between R&D expenditure and the capital adequacy ratio on return on equity (β = 0.0001, p < 0.05, CI = 0.001, 0.0101), net interest rate (β = −0.0241, p < 0.001, CI = −0.0344, −0.0139), and earnings per share (β = 0.0075, p < 0.001, CI = 0.0063, 0.0088). This finding suggests that the capital adequacy ratio partially moderates the relationship between R&D expenditure and operating performance, which is not entirely in line with Hypothesis 5.

Table 10 demonstrates the significant moderating effect of the capital adequacy ratio on the relationship between R&D expenditure and risk (β = −0.0017, p < 0.001, CI = −0.0027, −0.0008), which supports Hypothesis 6. This result is consistent with the findings of [35], which showed that a higher capital adequacy ratio is associated with better operating performance, and [26], which highlighted the reduced risk for banks with higher equity capital.

In summary, the empirical results show that the capital adequacy ratio has a partial moderating effect on the relationship between R&D expenditure and business performance, as well as a significant moderating effect on the relationship between R&D expenditure and business risk. These findings contribute to the literature on the importance of capital adequacy in shaping the financial sector’s growth and success while managing risks associated with innovation.

5. Discussion and Conclusions

This study examined how capital adequacy ratio might impact R&D activities’ outcomes regarding focal financial service firms engaging in developing financial development and application which was based on a sample of Taiwanese listed financial firms. We adopted the R&D perspective to theorize that capital adequacy ratio stimulates speculative outcomes—performance and risk—in financial service companies. Our results reveal the way in which financial development and application can positively moderate the relationship between R&D expenditure and business performance of financial firms through creating wide activities, such that patents and innovation activities are categorized as formal substantial achievements. These findings are in line with prior studies (e.g., [18,21]) in that FinTech investment would gradually reduce overhead costs and improve firm profitability.

Furthermore, via proposing a financial risk management perspective of capital adequacy ratio, this study shows that capital adequacy ratio moderates the link between R&D expenditure and corporate sustainability in terms of business performance and risk. These findings are consistent with prior research (e.g., [26,35]) in that high capital adequacy ratio will stimulate operating performance and alleviate operating risk within a firm.

The research findings of this study contributed to three streams of literature. We examined how capital adequacy ratio might impact R&D activities’ outcomes regarding focal financial service firms engaging in developing financial development and application. This study adopted an R&D perspective to theorize that capital adequacy ratio stimulates speculative outcomes—performance and risk—in financial service companies. R&D investment is inherently multifaceted. As such, this study put forward hypotheses regarding R&D activities and innovation behaviors, respectively. First, R&D activities were discussed in the literature, and it was assumed that financial companies’ investment in R&D activities creates benefits which lead to a performance improvement, but that the business risks borne by financial companies also increase. Secondly, regarding the assumption of innovation behavior, it was assumed that the R&D expenditures invested by financial companies that publish innovation-related news and apply for FinTech patents are beneficial to performance growth. Third, through using the capital adequacy ratio as a confounding variable, it was assumed that the capital adequacy ratio moderates the relationship between R&D expenditures and operating performance or risk.

This study also provides practical implications for policymakers and managers. The rise of increasingly sophisticated FinTech and financial development and application in recent decades has raised awareness of governance practices. The examination undertaken by this study provides empirical evidence regarding the inner workings of R&D developments. While R&D activities can enhance firm-level performance through investment in financial development and application, their risks may result in several adverse outcomes and uncertainties. Expectations of the potential reverse funds of capital adequacy ratio may also include consideration of alternatives to mitigate risks as well as the moderating effects on the relationship between R&D expenditures and business performance or risk.

The empirical results found that R&D expenditures invested in R&D activities are beneficial to the growth of performance and do not increase the risk of financial companies. In terms of innovation behavior, it was found that publishing financial innovation-related news, investment in FinTech innovation, and applications for FinTech patents are beneficial to their performance growth. Regarding the moderating effect of capital adequacy ratio, we found that when the capital adequacy ratio of financial companies was higher, the negative relationship between R&D activities and risk was strengthened. This means that financial companies with high capital adequacy ratios take less risks in R&D activities due to their advanced risk management capabilities.

According to the results of this study, the government should encourage financial service firms to be more committed to the development of financial technology, which can not only increase profitability, but also maintain the sustainability of financial companies. In addition, applying for patents can protect the proprietary technology and enhance the profitability of a firm. At the same time, the supervisory authority should require financial companies to strengthen capital and increase their capital adequacy ratio, so that they can gain the ability to take risks in the development of FinTech innovation and maintain financial sustainability.

The data of this study were based on 5-year empirical quantitative statistics in Taiwan. The investigating variables were obtained from various datasets with objective measurements in different time intervals. Thus, the management implications should be applied to firm management and policymakers globally. Future studies may continually investigate other financial markets to verify more policy implications. In addition, the issues of endogeneity might be considered as a challenge in management research. Future studies may concentrate fundamental endogeneity concepts through summarizing endogeneity causes in management research, as well as organizing the literature to address endogeneity according to the appropriate resources.