Financial intermediation Research Papers - Academia.edu (original) (raw)

Economic growth is a goal that every country strives to achieve. Even developed countries need to grow and increase their Gross Domestic product. Financial markets are the engine that drives this vehicle to economic growth. This paper... more

Economic growth is a goal that every country strives to achieve. Even developed countries need to grow and increase their Gross Domestic product. Financial markets are the engine that drives this vehicle to economic growth. This paper discusses the role of financial institution in economic growth in Malawi. As a small landlocked country, Malawi needs a strong financial system to help its stunting economy to grow. The paper looks at the seven roles of financial markets which are were (1) Resource Mobilisation, (2)credit creation, (3) provision of wealth (4) solution to liquidity problems, (5) payments function (6) risk and protection and (7) policy formulation. These roles have great impacts on investment, government spending, the RBM policies which focus on expansionary and contractionary policies and how financial markets help the institution to make such decisions. The paper also discusses the financial institutions that help to run the financial markets in Malawi. These institutions are the Reserve Bank of Malawi, the Malawi stock exchange, depository institutions, foreign exchange bureaus, finance companies, investment companies, contractual saving intermediaries and securities firms.

Depuis les années quatre-vingt-dix, l'ensemble des établissements bancaires marocains doivent respecter un arsenal de ratios prudentiels, principalement le ratio de solvabilité. Le respect de ces mesures prudentielles, à aspect... more

Depuis les années quatre-vingt-dix, l'ensemble des établissements bancaires marocains doivent respecter un arsenal de ratios prudentiels, principalement le ratio de solvabilité. Le respect de ces mesures prudentielles, à aspect réglementaire, s'inscrit dans une logique de recherche d'une stabilité du système financier, essentiellement le système bancaire, et ce en réduisant les risques financiers et opérationnels encourus par les entités bancaires. En parallèle, les autorités de régulation ont exigé des banques un travail de gestion globale de bilan, la mise en place d'un système de contrôle de gestion, afin de gérer le risque opérationnel et un effort en termes d'engagements en fonction des risques encourus. Dans ce sens, les organisations bancaires doivent procéder à une gestion opérationnelle des risques en fonction d'une approche prudentielle, imposée par les législateurs. Ainsi, l'approche prudentielle, à caractère macro-économique, se présente comme un déterminant de l'approche opérationnelle, à caractère micro-économique. Cette approche opérationnelle prend la forme d'une stratégie que chaque entité bancaire doit élaborer pour gérer les différents risques bancaires. Cette étude cherche à analyser le problème de la gestion des risques entre l'approche prudentielle et l'approche opérationnelle.

Venture capital is considered to be the most appropriate form of financing for innovative firms in high-tech sectors. Venture capital has greatly developed over the last three decades in the United States, but much less so in Europe,... more

Venture capital is considered to be the most appropriate form of financing for innovative firms in high-tech sectors. Venture capital has greatly developed over the last three decades in the United States, but much less so in Europe, where policy-makers are striving to help channel more funds into this form of financial intermediation. In this paper we provide the first assessment of venture capital in Europe. We document its development in the 1990s and compare it with that of American venture capital. We find the wedge between them to be large and growing. We then look at the involvement of venture capital with some of Europe's most innovative and successful companies, those listed on Europe's ‘new’ stock markets. Venture capital is effective in helping these firms overcome credit constraints, and thus to be born in the first place. Using a unique, hand collected data set from the listing prospectuses and annual reports of these companies, we find European venture capital to have a limited effect on their ability to raise equity capital, grow, and create jobs. We conclude that public support of the European venture capital industry should look at both its growth and at its maturation.

This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based on Hamann and Oviedo (2006). The presence... more

This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based on Hamann and Oviedo (2006). The presence of the financial intermediation naturally allows the introduction of standard policy instruments: the repo interest rate and the compulsory reserve requirements. The model is calibrated to match key steady-state ratios of Colombia and is used to evaluate the alternative policy instruments. Monetary policy conducted through the repo interest rate has the standard effects predicted by the new-keynesian framework. But changes in the compulsory reserve requirement rate may generate, under different scenarios, totally different reactions on economic activity, and little quantitative effects on inflation rates and aggregate demand. Therefore this last policy instrument appears to be uneffective and unreliable.

The study examines the link between the intermediation activities of banks and the growth of the Nigerian economy. This was motivated by the economic growth functions assigned banks by the regulatory and monetary authorities and the... more

The study examines the link between the intermediation activities of banks and the growth of the Nigerian economy. This was motivated by the economic growth functions assigned banks by the regulatory and monetary authorities and the presence of opposing strands of literature and empirical studies suggesting that banks do not cause economic growth. The study, therefore, investigates this relationship using 1980-2008 data obtained from the Central Bank of Nigeria. Descriptive research methodology was used in conjunction with inferential statistics of correlation and regression analysis. To ensure that regression results were not spurious, diagnostic analyses to test for stationarity was carried out on the variables using Augmented
Dickey-Fuller (ADF) unit root test. Furthermore, to ascertain the presence of long-term relationships among the variables, Johansen cointegrating test with the Trace and Eigenvalue statistics were adopted. To correct for the short-run disequilibrium among variables, the Error Correction Mechanism (ECM) was used. Finally, in order to determine whether a causal relationship exists between financial intermediation by banks and economic growth and
the direction of such a relationship, the Granger Causality test was used. The results reveal that financial intermediation by banks is a poor predictor of economic growth in Nigeria and that no causal relationship exists between them. It was therefore suggested that since the poor predictive power of financial intermediation proxies implied the presence of more influential factors like infrastructure, electric power, road network, portable water and education that government should pay more attention to the development of these. Attention should also be paid to lowering lending rate and stabilizing inflation as these were identified to have adverse consequences on the
economic growth.

This paper evaluates the role of financial intermediaries on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms with financial frictions giving rise to the financial... more

This paper evaluates the role of financial intermediaries on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms with financial frictions giving rise to the financial accelerator. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, financial frictions play a key role as a transmission channel for monetary policy shocks to get a standard drop in the number of new firms following a restrictive monetary policy decision. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative effect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by a combination of supply shocks. We thank Akbar Sadeghi of the US Bureau of Labor Statistics for providing data on firm's entry. We remain responsible for any errors and omissions

This paper examines the linkage between finance companies intermediation functions and economic growth in Nigeria. Using an annual time series data spanning the period of 1992 -2014 with the application of the estimation techniques of... more

This paper examines the linkage between finance companies intermediation functions and economic growth in Nigeria. Using an annual time series data spanning the period of 1992 -2014 with the application of the estimation techniques of ordinary least square (OLS), co integration test, alongside granger causality test. The Global statistic results indicates that about 80% of the variations in GDP for the estimation period were captured by the explanatory variables. The relative statistic results showed evidence for strong and positive correlation between NLA and GDP in both short run and long run. Causality runs Bi-directionally between INV and GDP and Uni-directionally between NLA and GDP. The study conclude that financial intermediation functions of finance companies has a prominent role in determining the performance of the Nigeria economy. As such there should be an effective regulatory framework for finance companies operations in Nigeria with the view of improving financial intermediations services. It further recommends that there should be collaboration between finance companies and other financial institutions with the view of building a robust financial system in Nigeria. By ways of policy statement public awareness on the existence and function of finance companies be made to increase their patronage.

We provide an empirical support for theories of lender specialization using the recently developed market for Debtor-in-Possession (DIP) financing. The legal environment in which DIP financing operates represents a natural laboratory for... more

We provide an empirical support for theories of lender specialization using the recently developed market for Debtor-in-Possession (DIP) financing. The legal environment in which DIP financing operates represents a natural laboratory for testing determinants of lending specialization (e.g. lender choice). We find that the choice of lender is not driven by credit risk, but by information considerations and that this lending specialization has loan pricing effects. In short, banks (non-bank lenders) lend to more (less) transparent firms and at lower (higher) loan spreads. Our results are consistent with the interpretation that banks provide important and useful services.

The paper investigates the determinants of trade credit in transition countries. Traditional theories of trade credit extension suggest that both financial and commercial motives may induce non-financial companies to assume a role of... more

The paper investigates the determinants of trade credit in transition countries. Traditional theories of trade credit extension suggest that both financial and commercial motives may induce non-financial companies to assume a role of financial intermediation. ...

In a number of European countries microfinance evolved from informal beginnings during the eighteenth and nineteenth centuries as a type of banking of the poor, juxtaposed to the commercial and private banking sector. Almost from the... more

In a number of European countries microfinance evolved from informal beginnings during the eighteenth and nineteenth centuries as a type of banking of the poor, juxtaposed to the commercial and private banking sector. Almost from the onset, microfinance meant financial intermediation between microsavings and microcredit, and was powered by intermediation. Legal recognition, regulation and mandatory supervision evolved in due course and led to a process of mainstreaming during the twentieth century when microfinance became part of the formal banking sector. In Germany, the former microfinance institutions now account for around 50% of banking assets; outreach is to around 90% of the population. Microfinance in Asia presumably has a much longer history, though little seems to be known about the early history of the hui in China, the chit funds in India, the arisan in Indonesia or the paluwagan in the Philippines, to name but a few. Financial institutions of indigenous origin, most of ...

This paper investigates different liquidity management aspects of Islamic banking industry in Pakistan. Islamic banking liabilities (deposits) and assets models, with regard to liquidity management, have found the significant role of... more

This paper investigates different liquidity management aspects of Islamic banking industry in Pakistan. Islamic banking liabilities (deposits) and assets models, with regard to liquidity management, have found the significant role of following variables: (a) returns on deposits, (b) returns on financing, (c) costs of banking operations, and (d) the Interbank rate, here Karachi Interbank Offer Rate (KIBOR). Islamic banking liquidity reserves model, however, recommends that Islamic banks need to consider following variables, while developing optimum liquidity reserves: (a) total Islamic financing, (b) returns on financing, and (c) KIBOR. Moreover, the resilience analysis of the Islamic banking industry carried out in the current study suggests that liquid instruments performed well historically in mitigating liquidity run conditions. Furthermore, forecasts made on the basis of Autoregressive Integrated Moving Average (ARIMA) models for the current study suggest that tier-2 liquid instruments would possibly be performing well in mitigating any future liquidity run conditions (up to 95% of deposits). However, in case of tier-1 liquid instruments, there is a possibility of liquidity mismatches when liquidity withdrawals exceed the limit of 55% of deposits. In conclusion, Islamic banking depositors, besides their religious motives of supporting Islamic banks, expect from their banks to earn profits and pay competitive returns on their deposits. Therefore, Islamic banks need to make prudent portfolio financing so as to pay competitive returns to their depositors.

An examination of the efficiency of the marketing distribution channel and organizational structure for insurance companies is presented from a framework that views the insurer as a financial intermediary rather than as a “production... more

An examination of the efficiency of the marketing distribution channel and organizational structure for insurance companies is presented from a framework that views the insurer as a financial intermediary rather than as a “production entity” which produces “value added” through loss payments. Within this financial intermediary approach, solvency can be a primary concern for regulators of insurance companies, claims-paying ability can be a primary concern for policyholders, and return on investment can be a primary concern for investors. These three variables (solvency, financial return, and claims-paying ability) are considered as outputs of the insurance firm. The financial intermediary approach acknowledges that interests potentially conflict, and the strategic decision makers for the firm must balance one concern versus another when managing the insurance company. Accordingly, we investigate the efficiency of insurance companies using data envelopment analysis (DEA) having as insurer output an appropriately selected (for the firm under investigation) combination of solvency, claims-paying ability, and return on investment as outputs. These efficiency evaluations are further examined to study stock versus mutual form of organizational structure and agency versus direct marketing arrangements, which are examined separately and in combination. Comparisons with the “value-added” or “production” approach to insurer efficiency are presented. A new DEA approach and interpretation is also presented.

This paper focuses on the corporate governance arrangements of institutions offering Islamic financial services (IIFS) aimed at protecting stakeholders'financial interests. Many IIFS corporate governance issues are common with those... more

This paper focuses on the corporate governance arrangements of institutions offering Islamic financial services (IIFS) aimed at protecting stakeholders'financial interests. Many IIFS corporate governance issues are common with those of their conventional counterparts. Others are distinctive. In particular they offer unrestricted investment accounts that share risks with shareholders but without a voting right. This paper first reviews internal and external arrangements put in place by IIFS to protect stakeholders'financial interests. It discusses shortcomings notably in terms of potential conflict of interest between shareholders and holders of unrestricted investment accounts. It then suggests a corporate governance framework that combines internal and external arrangements to provide safeguards to unrestricted investment account holders without overburdening IIFS'financial performance. The paper uses a review of 13 IIFS and regulatory information from countries where I...

This paper explores the existence of partisan cycles in foreign direct investment performance. Our theoretical model predicts that the incumbent government's partisanship should affect foreign investors' decision to flow into different... more

This paper explores the existence of partisan cycles in foreign direct investment performance. Our theoretical model predicts that the incumbent government's partisanship should affect foreign investors' decision to flow into different sectors of the host country: pro-labor governments would encourage the inflow of the type of investment that complements labor in production; pro-capital governments would promote the entry of investment that substitutes for labor. Empirical evidence from a sample of Organisation for Economic Co-operation and Development countries reveals a pattern of foreign investors' response to partisan cycles consistent with the predictions of the model. First, foreign investment systematically flows into different sectors of the host economy under left- and right-leaning incumbents. Second, we find a positive correlation between foreign investment and changes in average wages under left-leaning incumbents, but no effect on wages under right-leaning governments.