Information Asymmetry and Financial Development Dynamics in Africa
Review of Development Finance, 6(2), pp. 126-138 (December, 2016)
25 Pages Posted: 27 Jun 2015 Last revised: 6 Jan 2017
Date Written: June 26, 2015
We examine policy thresholds of information sharing for financial development in 53 African countries for the period 2004-2011. Public credit registries (PCR) and private credit bureaus (PCB) are used as proxies for reducing information asymmetry whereas financial development includes all financial dimensions identified by the Financial Development and Structure Database (FDSD) of the World Bank, namely: depth, efficiency, activity and size. The empirical evidence is based on interactive Generalised Methods of Moments with forward orthogonal deviations. The following findings are established. First, PCR and PCB have negative effects on financial depth, with the magnitude of the former higher. Second, contrary to PCR which have insignificant effects, PCB has a negative impact on banking system efficiency. Third, PCR and PCB have negative impacts on financial activity, with the magnitude of the latter higher. Moreover, their marginal effects are negative. Fourth, PCR and PCB have positive effects on financial size, with the effect of the former higher. While marginal effects are positive, corresponding thresholds are not within range. Policy implications are discussed.
Keywords: Information Asymmetry; Financial Development
JEL Classification: G20, G29, O16, O55
Suggested Citation: Suggested Citation