Information Asymmetry and Conditional Financial Sector Development

Journal of Financial Economic Policy, 9 (4), pp.372-392 (November, 2017).

27 Pages Posted: 17 Jul 2017 Last revised: 9 Nov 2017

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Jacinta Nwachukwu

Coventry University

Date Written: May 6, 2017

Abstract

Purpose- The purpose of this study is to examine the role of reducing information asymmetry (IA) on conditional financial sector development in 53 African countries for the period 2004-2011.

Design/methodology/approach- The empirical evidence is based on contemporary and non-contemporary quantile regressions. Instruments for reducing IA include pubic credit registries (PCRs) and private credit bureaus (PCBs). Hitherto unexplored dimensions of financial sector development are employed, namely: financial sector dynamics of formalization, informalization, semi-formalization and non-formalization.

Findings- The following findings are established. First, the positive (negative) effect of information sharing offices (ISO) on formal (informal) financial development is consistent with theory. Second, ISOs consistently increase: (i) formal financial development, with the incidence of PCRs higher in terms of magnitude and (ii) financial sector formalization, with the impact of PCBs higher for the most part. Third, only PCBs significantly decrease informal financial development and both ISOs decrease financial sector informalization. Policy implications are discussed.

Originality/value- The study assesses the effect of reducing information asymmetry on financial development when existing levels of it matter because current studies based on mean values of financial development provide blanket policy implications which are unlikely to be effective unless they are contingent on prevailing levels of financial development and tailored differently across countries with high, intermediate and low initial levels of financial development.

Keywords: Information sharing; Banking development; Africa

JEL Classification: G20; G29; L96; O40; O55

Suggested Citation

Asongu, Simplice and Nwachukwu, Jacinta, Information Asymmetry and Conditional Financial Sector Development (May 6, 2017). Journal of Financial Economic Policy, 9 (4), pp.372-392 (November, 2017). . Available at SSRN: https://ssrn.com/abstract=2999996 or http://dx.doi.org/10.2139/ssrn.2999996

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Jacinta Nwachukwu

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom

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