The Institutional Quality Effect on Credits Provided by the Banks

Gani, Azmat; Rasul, Tareq

doi:10.1007/s11294-020-09794-0

Cited by 14 publications

(14 citation statements)

References 33 publications

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Section: Resultssupporting

confidence: 94%

“…The rule of law positively and strongly impacts bank credit to the private sector at 1 and 10% significance levels for PCSE and system GMM estimators, respectively. The results are consistent with previous studies (Gani and Rasul, 2020;Shen et al, 2009;Troilo et al, 2019) that the rule of law has a positive and significant effect on bank credit. This shows that property rights, quality of contract enforcement and courts are crucial motivators for banks to extend loans to the private sector.…”

Section: Results From Aggregated Countriessupporting

confidence: 93%

“…The authors used PCA to develop a financial development index based on liquid liabilities to GDP, commercial bank assets and domestic credit to the private sector. Gani and Rasul (2020) indicated that the strength of legal systems, regulatory quality and the rule of law have a positive and strong influence on bank credit in 46 developing countries worldwide for 2004-2017. Their sample included only 10 African countries for which they employed a panel corrected standard errors (PCSE) and two-stage least squares (2SLS) for analysis.…”

Section: Empirical Reviewsmentioning

confidence: 99%

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The effect of institutional factors on financial deepening: evidence from 50 African countries

Sanga

Aziakpono

2022

JBSED

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PurposeThis paper investigates the impact of institutional factors on financial deepening and its implications on bank credit in Africa.Design/methodology/approachThe paper employs different panel econometric models to examine the heterogeneity of 50 African countries from 2000 to 2019. The estimators include panel corrected standard errors, system generalized method of moments, quantile and threshold regressions.FindingsThe results show that rule of law, regulatory quality, government effectiveness, voice and accountability, control of corruption and political stability significantly influence financial deepening in Africa. However, government effectiveness has a higher effect on middle- and high-income countries, while other indicators have a high impact on low-income countries. All institutional indicators have stronger effects, almost double, at higher financial depth levels than for countries with lower levels. Government effectiveness and regulatory quality impact financial deepening more for countries with strong institutions than weak ones. Thus, the relationship between institutional qualities and credit provided by banks is non-monotonic.Practical implicationsThe findings suggest that strengthening appropriate institutional factors based on country heterogeneity may effectively stimulate debt financing in Africa, the primary source of financing for small and medium-sized enterprises and entrepreneurs.Originality/valueThe novelty of this paper is that previous studies did not sufficiently scrutinize the heterogeneity of the structure of African economies – i.e. differences in institution, credit and income levels.

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Section: Resultssupporting

confidence: 94%

Section: Results From Aggregated Countriessupporting

confidence: 93%

Section: Empirical Reviewsmentioning

confidence: 99%

See 1 more Smart Citation

The effect of institutional factors on financial deepening: evidence from 50 African countries

Sanga

Aziakpono

2022

JBSED

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“…The PCSE provides reliable hypothesis testing and addresses the presence of serial correlation, heteroscedasticity and cross‐sectional dependence (Beck & Katz, 1995). Other studies examining the effects on institutional factors in financial deepening and economic growth have used PCSE (Gani & Rasul, 2020; Ntow‐Gyamfi et al, 2019). We also estimated a fixed effects (FE) model to complement the PCSE.…”

Section: Methodsmentioning

confidence: 99%

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

Sanga

Aziakpono

2022

African Development Review

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This paper examines whether technological innovations such as information and communication technology infrastructure, mobile phone subscriptions, secure internet servers and the number of automated teller machines and bank branches increased financial deepening in 43 African countries for the period 2010-2019. The study employs panel corrected standard errors, fixed effects and quantile regressions for empirical analysis. The results show that technological innovations have a positive and significant influence on financial deepening in Africa in terms of banks' mobilisation of deposits and allocation of credit to enterprises. Furthermore, the technological indicators have a strong and positive effect on higher levels of bank credit to the private sector than lower levels. As for bank deposits, only the number of branches was found to have significant and positive effects at a high level of bank deposits compared with a low level. These results imply that African governments and development partners can leverage ICT developments to increase financial deepening and reinvigorate debt financing, which is the primary funding source for small and medium-size enterprises. | INTRODUCTIONSmall and medium-size enterprises (SMEs) have better access to finance in an economy with financial deepening. Several empirical studies have confirmed that financial deepening creates a better economic environment for SMEs by (i) alleviating financing constraints (Beck, 2013), (ii) enabling the creation of new businesses (Cao-Alvira & Palacios-Chacón, 2021) and (iii) stimulating different economic opportunities and entrepreneurship activities (Dutta & Meierrieks, 2021;Koloma, 2021;Munemo, 2018). Hence, understanding the roles played by technological innovations in promoting financial deepening, which in turn facilitate SME financing in Africa, will be invaluable for developmental policies. SMEs can spur transformative and sustainable economic growth and social development in developing countries if they are fully capitalised and have access to financial services (Moreira, 2016; World Bank, 2020).The recent proliferation of mobile phone services, access to internet and broadband services, and the fourth industrial revolution have increased the use of emerging technologies in financial services (Del Gaudio et al., 2021;Liu et al., 2020;Mhlanga, 2020). These developments in information and communication technology (ICT) have increased the accessibility and affordability of financial services and created an environment ripe for disruptive technologies.

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“…Among others, the US financial institutions play role of active information providers to the global financial market. In one of the most recent study, Gani and Rasool (2020) highlight that institutional quality can play an important role in credit diffusion by the banks. Tsuji (2020) examines return's transmission and volatility spillover between the US and eight other major economies.…”

Section: Introductionmentioning

confidence: 99%

Integration and volatility spillover amongst banks: a cross-correlation analysis

Rehman¹,

Vo²

2021

JEAS

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PurposeThe rising interconnectedness between international banks, at one end, allow participants to share risk and diversification which leads to stable local lending and increase in competitiveness, however, at the other end poses potential for volatility spillover and thereby contagion phenomena. Therefore, investigating the presence of co-integration amongst international banks can provide useful information about risk spillover in times of financial turbulenceDesign/methodology/approachThe authors employ wavelet correlation and wavelet multiple cross-correlation strategies, following an initial decomposition of returns series through maximal overlap discrete wavelet transformation (MODWT).FindingsThe results indicate high integration level between Citibank and Deutsche Bank whereas potential of diversification exists between pairs of Citibank–Hong Kong and Shanghai Banking Corporation and Bank of America–Deutsche Bank, with former more evident in short- and medium-term relationship and later in long-run investment horizon. This paper carries implications for investors, fund managers and policymakers in foreseeing the prospects of contagion attributable to high level integration levels.Practical implicationsImplications for cross-border banking integration includes the presence of common lender effect which appears as a dominant factor for cross-border contagion. Therefore, banks based in different countries should focus more on funds diversification rather than borrowing much from any single creditor. Furthermore, foreign operations based on subsidiaries instead of relying on direct cross-border lending can help in reducing volatility of the foreign financial resources. Nevertheless, based on the results and significant strand of existing literature, the presence of contagion is inevitable, and therefore, a careful consideration of cross-border banking supervision and co-operation by the financial authorities can help in mitigating the volatility of global capital flows.Originality/valueFirst, this study fills gap in the existing literature regarding the discussion on portfolio diversification opportunities in the banking sector. The banking sector is usually perceived as a main source of fixed income securities or financing; however, on the contrary, investors may also be interested for investments in publicly listed bank's stock. Most of the work regarding portfolio diversification revolves around capital market instruments; however, publicly listed shares of largest bank also present an avenue for diversification. Second, major fundamentals and the associated factor for banks performance are reflected in the its profits, either these profits result from large customer base or proper allocation of bank's assets, etc. Therefore, returns of these banks serve as a barometer for their performance and co-movement between any two banks can highlight the presence and extent of their underlying association. Third, the authors apply the latest extensions in wavelet techniques after decomposing returns series through the MODWT framework. This decomposition followed by wavelet estimations allow us to investigate banks integration level across different time and frequency space thereby carrying implications for both short- and long-run investors. Fourth, by analysing the presence of returns co-movements, the authors can predict the extent of plausible contagion since the recent global financial crisis of 2008–2009 used banks as the main medium of propagation of shocks. Fifth, the work presents many implications for the investment community, major trading partners associated with banks through different instruments and for policymakers so that the effect of contagion can be anticipated or at least mitigated in case of future financial turbulence.HighlightsWe investigate portfolio diversification opportunities in the banking sector.Time-frequency returns co-movements is measures by applying wavelet multiple correlation and cross-correlation techniques on decomposed return series.Deutsche Bank and Bank of America act as highest transmitter and recipient of volatility, respectively using the spillover approach of Diebold and Yilmaz (2012).Citibank and Deutsche Bank exhibit high pairwise correlation indicating no diversification benefits.Citibank exhibits high level of integration with other banks in the short- and medium-run whereas Deutsche Bank exercises high integration levels in the long-run investment period.

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The Institutional Quality Effect on Credits Provided by the Banks

Cited by 14 publications

References 33 publications

The effect of institutional factors on financial deepening: evidence from 50 African countries

The effect of institutional factors on financial deepening: evidence from 50 African countries

The impact of technological innovations on financial deepening: Implications for SME financing in Africa

Integration and volatility spillover amongst banks: a cross-correlation analysis

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