The Role of ICT in Reducing Information Asymmetry for Financial Access

Asongu, Simplice and Moulin, Bertrand (2016): The Role of ICT in Reducing Information Asymmetry for Financial Access. Published in: Research in International Business and Finance , Vol. 38, No. September (September 2016): pp. 202-213.

Abstract

This study assesses the role of ICT in complementing private credit bureaus (PCB) and public credit registries (PCR) in reducing information asymmetry for financial access. The empirical evidence is based on Generalised Method of Moments with 53 African countries for the period 2004-2011. The following findings are established. First on financial access: (i) the marginal effects from interactions between ICT and PCR (PCB) are consistently positive (negative); (ii) net effects from interactions are negative with the higher magnitude from PCR and (iii) only thresholds corresponding to interactions between PCR and internet penetration are within range. Second, findings on financial allocation efficiency reveal positive marginal and net effects exclusively for mobile phones and PCR. Third, allocation efficiency may be constrained by increasing financial deposits. Overall, the complementarity between information offices and ICT in boosting financial access is still very limited. Policy implications are discussed with emphasis on improving the engaged complementarity and fighting surplus liquidity.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial access; Information asymmetry; ICT
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G29 - Other; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L96 - Telecommunications; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Acharya, V., Amihud, Y., & Litov, L., (2011), “Creditor rights and corporate risk taking”, Journal of Financial Economics, 102(1), pp. 150-166.

Al-Obaidan, A, M., (2008). “Efficiency Effect of Openness in the Banking Industry of Emerging Markets”, International Research Journal of Finance and Economics, 17, pp.92-104.

Allen, F., Otchere, I., & Senbet, L. W., (2011). “African financial systems: a review”, Review of Development Finance, 1(2), pp. 79-113.

Aminuzzaman, S., Baldersheim, H., & Jamil, I., (2003). “Talking back! Empowerment and mobile phones in rural Bangladesh: a study of the village phone scheme of Grameen Bank”, Contemporary South Asia, 12(3), pp. 327-348.

Andonova, V., (2006). “Mobile phones, the Internet and the institutional environment”, Telecommunications Policy, 30(1), pp. 29-45.

Asongu, S. A. (2012). “Government quality determinants of stock market performance in African countries”, Journal of African Business, 13(2), pp. 183-199.

Asongu, S. A. (2013a). “How Has Politico-Economic Liberalization Affected Financial Allocation Efficiency? Fresh African Evidence”, Economics Bulletin, 33(1), pp. 663-676.

Asongu, S. A., (2014a). “Correcting Inflation with Financial Dynamic Fundamentals: Which Adjustments Matter in Africa?”, Journal of African Business, 15(1). pp. 64-73.

Asongu, S. A., (2014b). “Financial development dynamic thresholds of financial globalisation: evidence from Africa”, Journal of Economic Studies, 41(2), pp. 166-195.

Asongu, S. A., (2015a). “Conditional Determinants of Mobile Phones Penetration and Mobile Banking in Sub-Saharan Africa”, Journal of the Knowledge Economy, http://link.springer.com/article/10.1007%2Fs13132-015-0322-z

Asongu, S. A., (2015b). “Finance and growth: new evidence from meta-analysis”, Managerial Finance, 41(6), pp. 615-639.

Asongu, S. A., Nwachukwu, J., & Tchamyou, S. V., (2015). “Information Asymmetry and Financial Development Dynamics in Africa”, African Governance and Development Institute Working Paper No. 15/025, Yaoundé.

Asongu, S. A. & Tchamyou, S. V., (2015). “The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency”, Brussels Economic Review: Revised and Resubmitted.

Arellano, M., & Bover, O., (1995). “Another Look at the Instrumental Variable Estimation of Error Component Model” .Journal of Econometrics, 68(1), pp. 29-52.

Ataullah, A., Cockerill, T., & Le, H., (2004). “Financial liberalization and bank efficiency: a comparative analysis of India and Pakistan”, Applied Economics, 36(17), pp. 1915-1924.

Baltagi, B. H., (2008). “Forecasting with panel data”, Journal of Forecasting, 27(2), pp. 153-173.

Bartels, F. L., Alladina, S. N., & Lederer, S., (2009), “Foreign Direct Investment in Sub-Saharan Africa: Motivating Factors and Policy Issues”, Journal of African Business, 10(2), pp. 141-162.

Barth, J., Lin, C., Lin, P., & Song, F., (2009), “Corruption in bank lending to firms: cross-country micro evidence on the beneficial role of competition and information sharing”, Journal of Financial Economics, 99, pp. 361-368.

Batuo, M. E., & Kupukile, M., (2010), “How can economic and political liberalization improve financial development in African countries?”, Journal of Financial Economic Policy, 2(1), pp. 35-59.

Boyd, J. H., Levine, R., & Smith, B. D., (2001), “The impact of inflation on financial sector performance”, Journal of Monetary Economics, 47, pp. 221-248.

Brambor, T., Clark, W. M., and Golder, M., (2006). “Understanding Interaction Models: Improving Empirical Analyses”, Political Analysis, 14 (1), pp. 63-82.

Brockman, P., & Unlu, E., (2009), “Dividend policy, creditor rights and the agency cost of debt”, Journal of Financial Economics, 92, pp. 276-299.

Brown, M., Jappelli, T., & Pagano, M., (2009), “Information sharing and credit : firm-level evidence from transition countries”, Journal of Financial Intermediation, 18, pp. 151-172.

Chen, C., (2009). “Bank Efficiency in Sub-Saharan African Middle-Income Countries”, IMF Working Paper, No. WP/09/14, Washington.

Claessens, S., & Klapper, L., (2005), “Bankruptcy around the world: explanations of its relative use”, American Law and Economics Review, 7, pp. 253-283.

Claus, I., & Grimes, A., (2003). “Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review”, NZ Treasury Working Paper No. 13/019, Wellington.

Coccorese, P., (2012), “Information sharing, market competition and antitrust intervention: a lesson from the Italian insurance sector”, Applied Economics, 44(3), pp. 351-359.

Coccorese, P., & Pellecchia, A., (2010), “Testing the ‘Quiet Life’ Hypothesis in the Italian Banking Industry”, Economic Notes by Banca dei Paschi di Siena SpA, 39(3), pp. 173-202.

Darley, W. K., (2012), “Increasing Sub-Saharan Africa's Share of Foreign Direct Investment: Public Policy Challenges, Strategies, and Implications”, Journal of African Business, 13(1), pp. 62-69.

Demirguc-Kunt, A., & Beck, T., (2009, May), “Financial Institutions and Markets Across Countries over time: Data and Analysis”, World Bank Policy Research Working Paper No. 4943.

Diamond, D. W., (1984), “Financial intermediation and delegated monitoring”, Review of Economic Studies, 51(3), pp. 393-414.

Diamond, D. W., & Dybvig, P. H., (1983), “Bank runs, deposit insurance, and liquidity”, Journal of Political Economy, 91(3), pp. 401-449.

Djankov, S., McLeish, C., & Shleifer, A., (2007), “Private credit in 129 countries”, Journal of Financial Economics, 84, pp. 299-329.

Do, Q. T., & Levchenko, A. A., (2004), “Trade and financial development”, World Bank Policy Research Working Paper No. 3347, Washington.

Easterly, W., (2005). “What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans,” Journal of Development Economics, 76, pp. 1-22.

Fouda, O. J. P., (2009), “The excess liquidity of banks in Franc zone: how to explain the paradox in the CEMAC”, Revue Africaine de l’Integration, 3(2), pp. 1-56.

Galindo, A., & Miller, M., (2001), “Can Credit Registries Reduce Credit Constraints? Empirical Evidence on the Role of Credit Registries in Firm Investment Decisions”, Inter-American Development Bank Working Paper, Washington.

Greenwood, J., & Jovanovic, B., (1990), “Financial development, growth and distribution of income”, Journal of Political Economy, 98, pp. 1076-1107.

Hauner, D., & Peiris, S. J., (2005). “Bank Efficiency and Competition in Low-Income Countries:The Case of Uganda”, IMF Working Paper, No. WP/05/240, Washington.

Houston, J. F., Lin, C., Lin, P., & Ma, Y., (2010), “Creditor rights, information sharing and bank risk taking”, Journal of Financial Economics, 96, pp. 485-512.

Huang, Y., (2005), “ What determines financial development?”, Bristol University, Discussion Paper No. 05/580, Bristol.

Huang, Y., & Temple, J. R. W., (2005), “Does external trade promote financial development?” CEPR Discussion Paper No. 5150, London.

Huybens, E., & Smith, B. D., (1999), “Inflation, financial markets and long-run real activity”, Journal of Monetary Economics, 43, pp. 283-315.

Ivashina, V., (2009), “Asymmetric information effects on loan spreads”, Journal of Financial Economics, 92, pp. 300-319.

Jaffee, D., & Levonian, M., (2001), “Structure of banking systems in developed and transition economies”, European Financial Management, 7 (2), pp. 161-181.

Jaffee, D. M., & Russell, T., (1976), “Imperfect information, uncertainty, and credit rationing”, Quarterly Journal of Economics, 90 (4), pp. 651-666.

Jappelli, T., & Pagano, M., (2002), “Information sharing, lending and default: Cross-country evidence”, Journal of Banking & Finance, 26, pp. 2017–2045.

Kablan, S., (2009). “Mesure de l'Efficacité des Banques dans les Pays en Voie de Développement: Le Cas de l'Union Economique et Monetaire Ouest Africaine (UEMOA) ”, African Development Review, 21(2), pp. 367-369.

Kablan, S., (2010). “Banking efficiency and financial development in Sub-Saharan Africa”, IMF Working Paper No.10/136, Washinton.

Kiyota, H., (March 2009). “Efficiency of commercial banks in Sub-Saharan Africa: a comparative analysis of domestic and foreign banks”, Asian Development Bank Institute.

Leland, H. E., & Pyle, D. H., (1977), “Informational asymmetries, financial structure, and financial intermediation”, The Journal of Finance, 32(2), pp. 371-387.

Levine, R., (1997), “Financial development and economic growth: Views and agenda”, Journal of Economic Literature, 35, pp. 688-726.

Love, I., & Mylenko, N., (2003), “Credit reporting and financing constraints”, World Bank Policy Research Working Paper Series No. 3142, Washington.

Mensah, E., Abor, J., Aboagye, A.Q.Q., & Adjasi, C. K. D., (2012). Enhancing the Economic Growth of Africa: Does Banking Sector Efficiency Matter?, in Kojo Menyah, Joshua Abor (ed.) Finance and Development in Africa (Research in Accounting in Emerging Economies, Volume 12 Part B) Emerald Group Publishing Limited, pp.1 - 23.

Muto, M., & Yamano, T., (2009). “The Impact of Mobile Phone Coverage Expansion on Market Participation: Panel Data Evidence from Uganda”, World Development, 37(12), pp. 1887-1896.

Osabuohien, E. S., & Efobi, E. R., (2013). “Africa’s Money in Africa”, South African Journal of Economics, 81(2), pp. 292-306.

Padilla, A. J., & Pagano, M., (2000), “Sharing default information as a borrower discipline device”. European Economic Review, 44(10), pp. 1951-1980.

Pagano, M., & Jappelli, T., (1993), “Information sharing in credit markets”, Journal of Finance, 43(5), pp. 1693-1718.

Penard, T., Poussing, N., Yebe, G. Z., & Ella, P. N., (2012). “Comparing the Determinants of Internet and Cell Phone Use in Africa : Evidence from Gabon ”, Communications & Strategies, 86, pp. 65-83.

Rolfe, R. J., & Woodward, D. P.,(2004). “Attracting foreign investment through privatization: the Zambian experience”, Journal of African Business, 5(1), pp.5-27.

Roodman, D., (2009a). “A Note on the Theme of Too Many Instruments”, Oxford Bulletin of Economics and Statistics, 71(1), pp. 135-158.

Roodman, D., (2009b). “How to do xtabond2: An introduction to difference and system GMM in Stata”, Stata Journal, 9(1), pp. 86-136.

Saint Paul, G., (1992), “Technological choice, financial markets and economic development”, European Economic Review, 36, pp. 763-781.

Saxegaard, M., (2006), “Excess liquidity and effectiveness of monetary policy: evidence from sub-Saharan Africa”, IMF Working Paper No. 06/115, Washington.

Singh, R. J, Kpodar, K., & Ghura, D., (2009), “Financial deepening in the CFA zone: the role of institutions”, IMF Working Paper No. 09/113, Washington.

Stiglitz, J. E., & Weiss, A., (1981), “Credit rationing in markets with imperfect Information”, The American Economic Review, 71(3), 393-410.

Tanjung , Y. S., Marciano, D., & Bartle, J., (2010), “Asymmetry Information and Diversification Effect on Loan Pricing in Asia Pacific Region 2006-2010”, Faculty of Business & Economics, University of Surabaya.

Tchamyou, S. V., (2015). “The role of knowledge economy in African business”, African Governance and Development Institute, No. 15/049, Yaoundé.

Triki, T., & Gajigo, O., (2014), “Credit Bureaus and Registries and Access to Finance: New Evidence from 42 African Countries”, Journal of African Development, 16(2), pp.73-101.

Tuomi, K., (2011), “The Role of the Investment Climate and Tax Incentives in the Foreign Direct Investment Decision: Evidence from South Africa”, Journal of African Business, 12(1), pp. 133-147.

Williamson, S. D., (1986), “Costly monitoring, financial intermediation, and equilibrium credit rationing”, Journal of Monetary Economics, 18(2), pp. 159-179.