Is information diffusion a threat to market power for financial access? Insights from the African banking industry

Asongu, Simplice and Batuo, Enowbi and Nwachukwu, Jacinta and Tchamyou, Vanessa (2016): Is information diffusion a threat to market power for financial access? Insights from the African banking industry.

Abstract

This study assesses how information diffusion dampens the adverse effect of market power on the price and quantity of loans provided by a panel of 162 banks from 39 African countries for the period 2001-2011. The empirical evidence is based on three endogenity-robust estimation techniques, namely: (i) Two Stage Least Squares (2SLS), (ii) Generalised Method of Moments (GMM) and (iii) Instrumental Variable Quantile Regressions (QR). Three key results emerge. First, from the GMM results, a mobile phone penetration rate of 54.29, rising to 57 per 100 people are predicted to neutralise the adverse effect of market power on the average loan price and quantity respectively. Second, from the QR, mobile phone penetration rates of 56.20, 52.04 and 42.76 per 100 people is needed to nullify the negative effect of market power on loan quantity at the 0.10th, 0.25th and 0.90th quintiles respectively. Third, a considerably lower internet penetration rate of 9.49 per 100 people is required to counteract the negative impact of market power on loan quantity at the 0.90th quintile.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial access; Market power; Information asymmetry; ICT; Africa
• 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

Ahokpossi, C., (2013). “Determinants of bank interest margins in Sub-Saharan Africa”, IMF Working Paper No. 13/34, Washington.

Al-Jarrah, I. M., & Gharaibeh, H., (2009). “The Efficiency Cost of Market Power in the Banking Industry: A Test of the “Quiet Life” and Related Hypotheses in the Jordan Banking Industry”, Investment Management and Financial Innovations, 6(2), pp. 32-39

Al-Muharrami, S., & Methews, K., (2009), “Market Power Versus Efficient-Structure in Arab GCC Banking”, Applied Financial Economics, 19(18), pp. 1487-1496.

Ali, S. S., (2012). “Islamic Banking in the MENA Region”, Islamic Research and Training Institute (IRTI), Working Paper Series No. 1433-01, Jeddah.

Arellano, M., & Bover, O., (1995). “Another look at the instrumental variable estimation of error components models”, Journal of Econometrics, 68(1), pp. 29-52.

Ariss, R. T., (2010). “On the Implications of Market Power in Banking: Evidence from Developing Countries”, Journal of Banking and Finance, 34(4), pp. 765-775.

Asongu, S. A., (2013). “How Would Population Growth Affect Investment in the Future? Asymmetric Panel Causality Evidence for Africa”, African Development Review, 25(1), pp. 14-29.

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

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

Asongu, S. A., & Anyanwu, J. C., & Tchamyou, S. V., (2016b). “Information sharing and conditional financial development in Africa”, African Governance and Development Institute Working Paper No. 16/001, Yaoundé.

Asongu, S. A, & De Moor, L., (2016). “Financial Globalisation Dynamic Thresholds for Financial Development: Evidence from Africa”, European Journal of Development Research, DOI: 10.1057%2Fejdr.2016.10.

Asongu, S. A., & Le Roux, S., (2016). “Reducing Information Asymmetry with ICT: A critical review of loan price and quantity effects in Africa”, African Governance and Development Institute Working Paper No. 16/024, Yaoundé.

Asongu, S. A, & Nwachukwu, J. C., (2016a). “The Mobile Phone in the Diffusion of Knowledge for Institutional Quality in Sub Saharan Africa”, World Development, 86(October), pp. 133-147.

Asongu, S. A, & Nwachukwu, J. C., (2016b). “Foreign aid and governance in Africa”, International Review of Applied Economics, 30(1), pp. 69-88.

Asongu, S. A., & Nwachukwu, J. C., (2016c). “The Role of Governance in Mobile Phones for Inclusive Human Development in Sub-Saharan Africa”, Technovation, 55-56 (September-October), pp. 1-13.

Asongu, S. A., Nwachukwu, J., & Tchamyou, S. V., (2016a). “Information Asymmetry and Financial Development Dynamics in Africa”, Review of Development Finance DOI: doi.org/10.1016/j.rdf.2016.09.001.

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 SubSaharan Africa: Motivating Factors and Policy Issues”, Journal of African Business, 10(2), pp. 141-162.

Beck, T., Demirgüç-Kunt, A., & Levine, R., (2003). “Law and finance: why does legal origin matter?”, Journal of Comparative Economics, 31(4), pp. 653-675.

Beck, T., Demirguc-Kunt, A., & Merrouche, O., (2010). “Islamic vs. Conventional Banking: Business Model, Efficiency and Stability”, World Bank Policy Research Working Paper No. 5446, Washington.

Beck, T., & Hesse, H., (2006). “Bank efficiency, ownership and market structure: why are interest spreads so high in Uganda?”, Policy Research Working Paper Series No. 4027, The World Bank, Washington.

Bergemanny, D., Heumannz, T., & Morris, S., (2015). “Information and Market Power”, Department of Economics, Yale University, New Haven, https://economics.wustl.edu/files/economics/imce/bergemann_paper.pdf (Accessed: 16/08/2016).

Billger, S. M., & Goel, R. K., (2009). “Do existing corruption levels matter in controlling corruption? Cross-country quantile regression estimates”, Journal of Development Economics, 90(2), pp. 299-305.

Boateng, A., Asongu, S. A., Akamavi, R., & Tchamyou, V. S., (2016). “Information Asymmetry and Market Power in the African Banking Industry”, African Governance and Development Institute Working Paper No. 16/032, Yaoundé.

Boulianne, S., (2009). “Does Internet Use Affect Engagement? A Meta-Analysis of Research”, Political Communication, 26(2), pp. 193-211.

Carson, R. T., & Sun, Y. (2007). “The Tobit model with a non-zero threshold”, Econometrics Journal, 10(3), pp. 488-502.

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), 28, pp. 62-69.

Delis, M. D., & Tsionas, E. G., (2009), “The Joint Estimation of Bank-Level Market Power and Efficiency”, Journal of Banking and Finance, 33(10), pp. 1842-1850.

Dewan, S., & Ramaprasad, J., (2014). “Social media, traditional media and music sales”, MIS Quarterly, 38(1), pp. 101-128.

Diamond, L., (2010). “Liberation Technology”, Journal of Democracy, 21(3), pp. 69-83.

Djankov, S., McLiesh, C., & Shleifer, A. (2007). “Private credit in 129 countries”. Journal of Financial Economics, 84(2), pp.299-329.

Fang, Y., & Marton, K., (2011). “Bank Efficiency in Transition Economies: Recent Evidence from South-Eastern Europe”, Research Discussion Papers No. 5/2011, Helsinki: Bank of Finland.

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.

Fu, X., & Heffernan, S., (2009), “The Effects of Reform on China’s Bank Structure and Performance”, Journal of Banking and Finance, 33(1), pp. 39-52.

Grossman, G., Humphreys, M., and Sacramone-Lutz, G., (2014). ““I wld like u WMP to extend electricity 2 our village”: On Information Technology and Interest Articulation”, American Political Science Review, 108(3), pp. 688-705.

Hart, O., & Moore, J., (1994). “A theory of debt based on the inalienability of human capital”, Quarterly Journal of Economics, 109(4), pp. 841-879.

Hellstrom, J. (2008 ), “Mobile phones for good governance– challenges and way forward”, Stockholm University / UPGRAID, http://www.w3.org/2008/10/MW4D_WS/papers/hellstrom_gov.pdf (Accessed: 22/11/2015).

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

Kelsey D & le Roux, S., (2016), “Dragon Slaying with Ambiguity: Theory and Experiments”, Journal of Public Economic Theory. doi: 10.1111/jpet.12185.

Koetter, M., Kolari, J. W., & Spierduk, L., (2008). “Efficient Competition ? Testing the ‘Quiet Life’ of U.S Banks with Adjusted Lerner Indices”, Proceedings of the 44th ‘Bank Structure and Competition’ Conference, Federal Reserve Bank of Chicago.

Koetter, M., & Vins, O., (2008). “The Quiet Life Hypothesis in Banking-Evidence from German Savings Banks”, Department of Finance, Goethe University, Working Paper Series: Finance and Accounting No. 190, Frankfurt.

Koenker, R., & Bassett, Jr. G., (1978). “Regression quantiles”, Econometrica, 46(1), pp. 33-50.

Koenker, R., & Hallock, F. K., (2001). “Quantile regression”, Journal of Economic Perspectives, 15(4), pp. 143-156.

Kumbhakar, S. C., & Lovell, C. A. K., (2000). Stochastic Frontier Analysis, Cambridge MA: Cambridge University Press.

Le Roux, S., & Kelsey, D., (2016). “Strategic Ambiguity and Decision-making An Experimental Study”, Department of Economics, Oxford Brookes University.

Love, I., & Zicchino, L., (2006). “Financial Development and Dynamic Investment Behaviour: Evidence from Panel VAR” .The Quarterly Review of Economics and Finance, 46(2), pp. 190-210.

Manacorda, M., & Tesei, A., (2016). “Liberation Technology: Mobile Phones and Political Mobilization in Africa”, Queen Mary University of London, http://personal.lse.ac.uk/manacorm/liberation_technology.pdf (Accessed: 20/02/2016).

Maudos, J., & Fernandez de Guevara, J. (2007). “The cost of market power in banking social welfare loss vs. cost efficiency”, Journal of Banking and Finance, 31(7), pp. 2103-2125.

Mitchell, K., & Onvural, N. M., (1996). “Economies of scale and scope at large commercial banks: Evidence from the Fourier flexible form”, Journal of Money, Credit and Banking, 28(2), pp. 178-199.

Ngigi, G., (2013a, July). “CBK puts big banks on the spot over high interest rates”, BUSINESS DAILY, http://www.businessdailyafrica.com/CBK-puts-big-banks-on-the-spot-over-high-interest-rates/-/539552/1908098/-/7t6949z/-/index.html (Accessed: 20/06/2016).

Ngigi, G., (2013b, April). “High cost of loans favours big banks over small lenders”, BUSINESS DAILY, http://www.businessdailyafrica.com/High-cost-of-loans-favours-big-banks-over-small-lenders/-/539552/1744902/-/awkd24/-/index.html (Accessed: 20/06/2016).

Okada, K., & Samreth, S.,(2012). “The effect of foreign aid on corruption: A quantile regression approach”, Economic Letters, 11(2), pp. 240-243.

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(2), pp. 65-83.

Pierskalla, J. H., & Hollenbach, F. M., (2013). “Technology and Collective Action: The Effect of Cell Phone Coverage on Political Violence in Africa”, American Political Science Review, 107(2), pp. 207-224.

Punt, L., & Van Rooij, M., (2009). “The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment”, Kredit und Kapital, 36, pp. 1-29

Pruteanu-Podpiera, A., & Weill, L., & Schobert, F., (2008), “Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry”, Comparative Economics Studies, 50(2), pp. 253-273.

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.

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

Schaeck, K., & Cihak, M., (2008), “How Does Competition Affect Efficiency and Soundness in Banking? New Empirical Evidence”, ECB Working Paper Series No. 932, European Central Bank, Frankfurt.

Solis, L., & Maudos, J., (2008), “The Social Costs of Bank Market Power: Evidence from Mexico”, Journal of Comparative Economics, 36(3), pp. 467-488.

Snow, B. C., (2009). “Mobile Phone Diffusion and Corruption in Africa”, Political Communication, 26(3), pp.333-353.

Stiglitz, J., &Weiss, A. (1981). “Credit rationing in market with imperfect information”, American Economic Review, 71(3), pp. 393-410.

Tetsushi, H., Yoshiro, T., & Hirofumi, U., (2012). “Firm Growth and Efficiency in the Banking Industry: A New Test of the Efficient Structure Hypothesis”, RIETI Discussion Paper Series 12-E-060. Tokyo: RIETI.

Tchamyou, S. V., & Asongu, S. A., (2016). “Information Sharing and Financial Sector Development in Africa”, Journal of African Business. DOI: 10.1080/15228916.2016.1216233.

Titko, J., & Dauylbaev, K., (2015). “Testing the Quiet Life Hypothesis in the Banking Sector”, 19th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2015; Orlando; United States; 12 July 2015 through 15 July 2015; Code 116973. https://www.scopus.com/record/display.uri?eid=2-s2.0-84961196128&origin=inward&txGid=0 (Accessed: 20/09/2016).

Tobin, J. (1958). “Estimation of relationships for limited dependent variables”. Econometrica 26(1), pp. 24-36.

Tu, A. H., & Chen, S., (2000), “Bank Market Structure and Performance in Taiwan Before and After the 1991 Liberalization”, Review of Pacific Basin Financial Markets and Policies, 3(4), pp. 475-490.

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.

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.

Weidmann, J. N., & Shapiro, N. B., (2015). “Is the Phone Mightier Than the Sword? Cellphones and Insurgent Violence in Iraq”, International Organisation, 69(2), pp. 247-274.

Weill, L., (2004), “On the Relationship Between Competition and Efficiency in the EU Banking Sectors”, Kredit und Kapital, 37, pp. 329-352.