Institutional quality and social cost of intermediation in Africa: Does the level of financial market development matter?
Date
2021
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Finance & Economics
Abstract
This article examines the effect of institutional quality on social cost of intermediation in high and low-developed financial markets across 29 African
countries between 2006 and 2013. Employing bootstrap-quantile and two-step
system generalized methods of moments models with bank-level data of about
330 banks, the results provide interesting and new insights. The results show
that improvement in institutional quality in high- or low-developed financial
markets translates into reduced social cost of intermediation for society.
However, it is evident from the results that improvement in institutional quality is more robust, persistent and weightier in reducing the social cost of intermediation in low-developed financial markets, which are often characterized by
with weak regulatory regimes and enforcement. Hence, improvement in institutional quality shores up regulatory supervision, monitoring and enforcement
which translates into heavier dampening of social cost of financial intervention in less developed financial markets. Moreover, bank size, credit shocks,
return on equity and liquidity are key drivers of social cost of intermediation
both in low- and high-developed financial markets. These findings have policy
implications and recommendations for policymakers and regulators of
financial institutions. Policymakers and regulators, especially those in less
developed financial markets, must endeavour to create, implement and
advanced mechanisms and enabling environment that enhances the quality of
institutions since improved institutional quality reduces social cost of interaction to the benefit of society
Description
Research Article
Keywords
financial development, institutional quality, Africa