The study is grounded in two established theoretical frameworks. Resource-based theory holds that a firm’s sustained competitive advantage stems from resources and capabilities that are valuable, rare, and difficult to imitate, and innovativeness fits this description well because it is embedded in organizational culture rather than purchased on the open market. Social exchange theory, by contrast, explains the psychological contract between employer and employee: when organizations provide support, autonomy, and fair rewards, employees reciprocate with discretionary effort, creativity, and commitment to organizational goals. The researchers combined these perspectives to build a model in which internal antecedents of corporate entrepreneurship, including management support, work discretion or autonomy, reward systems, time availability, and flexible organizational boundaries, influence business performance both directly and indirectly through the mediating role of innovativeness.

To test this model, the team adopted a quantitative research design and collected data through standardized questionnaires administered to 251 employees of commercial banks in the Dessie district. The survey instrument measured each construct using multi-item scales rated on a five-point agreement continuum, covering dimensions such as whether management encourages employees to develop their own ideas, whether workers have the freedom to use their own judgment, whether rewards are tied to performance, whether employees have adequate time for long-term problem solving, and whether organizational rules and procedures are clearly defined yet flexible. Business performance was assessed through indicators including profitability growth, revenue increases, asset accumulation, market share, and customer satisfaction over the preceding five years, while innovativeness captured the extent to which banks implement fresh ideas, pioneer new products and services, and invest in new product development.

The analytical backbone of the study was partial least squares structural equation modelling, or PLS-SEM, a statistical technique well suited to testing complex networks of relationships among latent variables that cannot be observed directly. PLS-SEM estimates both the measurement model, which confirms that survey items reliably capture their intended constructs, and the structural model, which quantifies the strength and significance of hypothesized paths. This approach allowed the researchers to decompose the total effect of each antecedent on business performance into a direct component and an indirect component routed through innovativeness, a decomposition that is essential for distinguishing full mediation from partial mediation.

The results revealed strong positive correlations between innovativeness and three internal antecedents in particular: flexible organizational boundaries, managerial support, and reward systems. In other words, banks whose managers actively champion new ideas, provide funding for experimental projects, and tolerate the bending of rigid procedures tend to be the same banks whose employees report high levels of innovative behavior. The correlation analysis showed innovativeness correlating at 0.705 with management support, 0.657 with organizational boundaries, and 0.649 with reward practices, alongside a substantial 0.75 correlation between innovativeness and business performance itself, suggesting that innovation and performance travel closely together in this sector.

Perhaps the most consequential finding concerns the architecture of mediation. Innovativeness partially mediated the link between reward practices and business performance, and likewise partially mediated the relationship between organizational boundaries and performance. Partial mediation means these antecedents improve performance both directly and by stimulating innovation, so organizations can benefit through two parallel channels. By contrast, innovativeness fully mediated the relationship between management support and business performance. This is a critical distinction: management support does not appear to lift performance on its own; it does so only insofar as it ignites innovative behavior among employees. Supportive leadership that fails to translate encouragement into actual creativity delivers no measurable performance gain, a warning for executives who mistake open-door policies for innovation strategy.

The practical implications for bank managers in developing countries are direct. The study indicates that management support, flexible organizational boundaries, and competitive remuneration schemes are essential levers for stimulating internal innovation and enhancing business performance. Concretely, this means making money available to get new project ideas off the ground, giving employees free time to develop promising concepts, recognizing calculated risk takers even when projects ultimately fail, and encouraging staff to cross departmental lines in pursuit of new ideas. Reward systems matter as well: when employees see that promotions, recognition, and compensation follow from innovative contributions, the reciprocal dynamics described by social exchange theory kick in, and creativity becomes self-sustaining rather than dependent on the goodwill of individual managers.

Beyond the immediate managerial takeaways, the research connects corporate entrepreneurship to broader development goals. The authors argue that by investing in these supportive frameworks, banks actively promote employee creativity and foster an entrepreneurial culture, and that this focus on continuous innovation improves the long-term competitive position and institutional health of the banks while transforming them into dynamic drivers of economic growth. The study explicitly links these outcomes to Sustainable Development Goal 8 on decent work and economic growth and Sustainable Development Goal 9 on industry, innovation, and infrastructure, positioning the internal culture of financial institutions as a micro-level foundation for national economic transformation. In a district like Dessie, where commercial banks serve as gateways to finance for small enterprises and households, the ripple effects of an innovative banking sector could extend well beyond balance sheets.

The study also demonstrates methodological rigor appropriate to its claims. The research received ethics approval from the Wollo University Institutional Research Ethics Review Committee and was conducted in accordance with the Declaration of Helsinki, with informed consent obtained from all participants. Harman’s single factor analysis was used to check that common method variance, a known risk in self-report surveys, did not unduly inflate the observed relationships, and the correlation matrix reported in the study’s appendices provides transparency about the interrelationships among all seven constructs examined. The authors declare no external funding and no competing interests, and they note that AI-assisted tools were used only for grammatical refinement, with the authors retaining full responsibility for the content.

For the global readership of innovation research, the Ethiopian banking study adds an important data point to a growing literature suggesting that the pathway from organizational design to financial outcomes runs through culture. Banks in emerging markets often compete with limited access to cutting-edge technology and capital, which makes internally generated innovation one of the few differentiators they can control. The message from Dessie is that the machinery of innovation is assembled from familiar parts, including supportive managers, permeable boundaries, and meaningful rewards, but it only produces performance when those parts are connected through employees who actually create and implement new ideas. For policymakers and executives seeking to strengthen financial systems in developing economies, the study suggests that the highest-return investment may not be in new branches or platforms, but in the everyday conditions under which bank employees are allowed to think differently.

Subject of Research: The mediating role of innovativeness in linking internal antecedents of corporate entrepreneurship to commercial bank business performance in Ethiopia

Article Title: The mediating role of innovativeness in the relationship between internal antecedents of corporate entrepreneurship and business performance of Dessie district commercial banks in Ethiopia

Article References: Gorfie, G. T., & Zewdu, T. A. (2026). The mediating role of innovativeness in the relationship between internal antecedents of corporate entrepreneurship and business performance of Dessie district commercial banks in Ethiopia. Discover Sustainability. https://doi.org/10.1007/s43621-026-04849-4

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04849-4

Keywords: corporate entrepreneurship, innovativeness, commercial banks, Ethiopia, management support, reward systems, organizational boundaries, PLS-SEM, resource-based theory, social exchange theory, business performance, sustainable development goals

The study, conducted by Huong Thi Thu Pham of Hung Vuong University, Nga Thi Pham of Thai Nguyen University of Economics and Business Administration, Anh The Khuc and Anh Bao Nguyen of the National Economics University in Hanoi, set out to resolve a stubborn weakness in the banking literature. Most previous analyses of how net interest margins affect profitability assumed a linear relationship: every additional basis point of margin was presumed to add roughly the same amount of profit regardless of the bank’s size. Others divided banks into small, medium, and large categories using arbitrary cutoffs chosen by the researchers rather than by the data. Both approaches, the authors argue, risk missing the scale-dependent structural breakpoints that actually govern how banking business models perform.

To find where that breakpoint lies, the team turned to an endogenous panel threshold regression framework, a statistical technique that lets the data itself reveal the critical value at which the relationship between two variables changes. Rather than imposing a threshold chosen in advance, the model searches across possible asset levels and identifies the point that best splits the sample into two distinct regimes. Applied to a panel of 58 commercial banks across Southeast Asia observed from 2013 to 2025, the procedure converged on a specific total asset threshold of USD 1.3 billion, expressed in the model’s logarithmic scale as a size value of 14.0794. The precision of the estimate matters because it transforms an abstract question about economies of scale into an actionable benchmark that regulators and bank executives can actually use.

The coefficients on either side of that line tell a striking story. Below the threshold, each unit of net interest margin is associated with an estimated profitability coefficient of 0.2608. Above the threshold, the same coefficient rises to 0.4014—an increase of more than half. In practical terms, this means that once a bank crosses the critical asset scale, every increment of core intermediation income it generates contributes substantially more to its bottom line than the identical increment would at a smaller institution. Crucially, the study finds that crossing the threshold amplifies rather than reverses the profitability benefits of margins, countering any suggestion that oversized banks suffer diminishing returns on their core lending business in emerging markets.

The mechanism behind this asymmetry, the authors contend, lies in economies of scale. Larger banks can spread fixed operating costs—branch networks, core banking systems, compliance infrastructure, risk management platforms—across a much wider asset base. They typically enjoy stronger bargaining power in funding markets, allowing them to gather deposits and wholesale funding more cheaply. They can also invest in the technology and analytical capacity needed to price loans more accurately and manage credit risk more efficiently. Together, these advantages mean that interest income is generated with less waste, so a greater share of each unit of margin flows through to net profits. The threshold result captures the point at which these scale economies become decisive enough to visibly change the margin-to-profit relationship.

The timing of the study gives its findings particular weight. The 2013 to 2025 window spans a period of profound stress and transformation in Southeast Asian banking, including the disruptions of the pandemic era, shifting interest rate cycles, and accelerating digitalization. Sustainable profitability—the ability of banks to remain consistently profitable across such turbulence rather than enjoying isolated windfall years—is critical for emerging economies, where commercial banks supply the overwhelming majority of external financing for firms and households. When bank margins translate efficiently into profits, banks can absorb losses, maintain lending through downturns, and support the robust flow of economic credit that development strategies depend on.

For policymakers in emerging economies, the implications are direct. The authors argue that government support programs and banking consolidation strategies should explicitly target scale optimization rather than treating bank size as an afterthought. In many Southeast Asian markets, the banking sector remains fragmented, with dozens of small institutions competing in the same territories and duplicating infrastructure. The threshold evidence suggests that policies encouraging mergers, acquisitions, or organic growth up to and beyond the USD 1.3 billion mark could unlock measurable efficiency gains across the system. At the same time, the finding invites careful calibration: consolidation policy must balance the efficiency benefits of scale against the competition and systemic risk considerations that have long dominated the regulatory conversation.

Bank managers receive an equally concrete prescription. The study advises executives to prioritize asset growth and cost reduction in order to leverage the asymmetric benefits of net interest margin. For institutions still below the threshold, the message is that margin expansion alone will deliver only limited profit gains; the strategic payoff arrives when margin management is paired with a credible path across the critical scale. For banks already above the line, the results justify continued investment in scale-sensitive capabilities, from digital delivery channels to centralized credit underwriting, that deepen the economies of scale the threshold analysis reveals. Cost discipline, in this framing, is not merely housekeeping but a precondition for converting intermediation income into durable profitability.

Methodologically, the paper’s contribution lies in demonstrating what endogenous threshold modeling can uncover where linear panels cannot. By letting the breakpoint emerge from the data, the approach avoids the arbitrary size classifications that have fragmented earlier findings and provides a replicable template for studying scale effects in other regions and other financial systems. The framework could readily be applied to banking markets in other emerging economies, to different profitability measures such as return on average assets, or to other candidate thresholds defined by capitalization, deposit base, or loan book size. If the Southeast Asian pattern holds elsewhere, the notion of a universal, size-blind relationship between margins and profits may need to be retired altogether.

The study also carries a broader warning for the field of sustainable finance research. As attention shifts toward environmental and governance dimensions of banking stability, the new results are a reminder that the humble mechanics of intermediation—how efficiently a bank turns its interest spread into retained earnings—remain foundational. A banking sector whose small institutions struggle to convert margins into profits is a sector with thinner loss-absorbing buffers, weaker capacity to fund green transitions, and greater vulnerability to shocks. By pinpointing the exact asset scale at which that conversion becomes efficient, the research offers emerging economies a quantified target in the pursuit of resilient, sustainable financial systems, and gives the global debate over bank size a number worth arguing about.

Subject of Research: Threshold effects of bank size on the relationship between net interest margin and sustainable profitability in Southeast Asian emerging economies

Article Title: Threshold effects of net interest margin on bank sustainable profitability in emerging economies

Article References: Pham, H. T. T., Pham, N. T., Khuc, A. T., & Nguyen, A. B. (2026). Threshold effects of net interest margin on bank sustainable profitability in emerging economies. Discover Sustainability. https://doi.org/10.1007/s43621-026-04921-z

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04921-z

Keywords: net interest margin, bank profitability, threshold regression, economies of scale, Southeast Asia, emerging economies, commercial banks, banking consolidation, ROAA, sustainable finance, panel data, financial economics