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Information Asymmetry and Conditional Financial Sector Development

Simplice Asongu () and Jacinta Nwachukwu ()

No 17/027, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.

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 (search for similar items in EconPapers)
JEL-codes: G20 G29 L96 O40 O55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg
Date: 2017-05
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Forthcoming: Journal of Financial Economic Policy

Downloads: (external link)
http://www.afridev.org/RePEc/agd/agd-wpaper/Inform ... ctor-Development.pdf Revised version, 2017 (application/pdf)

Related works:
Journal Article: Information asymmetry and conditional financial sector development (2017) Downloads
Working Paper: Information Asymmetry and Conditional Financial Sector Development (2017) Downloads
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