The Role of Local Depositors in Controlling Expenses in Small-Scale Financial Intermediation: An Empirical Analysis

23 Pages Posted: 22 Oct 2007

See all articles by Aidan Hollis

Aidan Hollis

University of Calgary - Department of Economics

Arthur Sweetman

McMaster University - Department of Economics; McMaster University - Centre for Health Economics and Policy Analysis (CHEPA); IZA Institute of Labor Economics

Abstract

Using data on Irish loan funds, a nineteenth-century quasi-bank system, we explore how the capital structure affects managerial agency to impact non-interest expenses. These organizations had no equity-holders and were financed by deposits and "capital," comprising donations and accumulated profits, creating problems of managerial moral hazard. Higher net income (before non-interest expenses) is associated with higher salaries and other non-interest expenses. More surprisingly, higher "capital"-deposit ratios led to higher expenses even after controlling for net income. While this institution is unique, the findings suggest that depositors could assist in controlling expenses in micro-finance organizations.

Suggested Citation

Hollis, Aidan and Sweetman, Arthur, The Role of Local Depositors in Controlling Expenses in Small-Scale Financial Intermediation: An Empirical Analysis. Economica, Vol. 74, No. 296, pp. 713-735, November 2007. Available at SSRN: https://ssrn.com/abstract=1022708 or http://dx.doi.org/10.1111/j.1468-0335.2007.00592.x

Aidan Hollis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-5861 (Phone)
403-220-5262 (Fax)

Arthur Sweetman

McMaster University - Department of Economics ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

McMaster University - Centre for Health Economics and Policy Analysis (CHEPA) ( email )

1280 Main St. W
Hamilton, ON L8S 4M4
Canada

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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