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Article

George Okello Candiya Bongomin, John C. Munene, Joseph Mpeera Ntayi and Charles Akol Malinga

Drawing from the fact that institutions act as incentives and disincentives to human behaviour in financial markets, the purpose of this study is to examine the moderating…

Abstract

Purpose

Drawing from the fact that institutions act as incentives and disincentives to human behaviour in financial markets, the purpose of this study is to examine the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

Design/methodology/approach

The study used cross-sectional research design and data were collected from the poor residing in rural Uganda. Statistical package for social sciences was used to analyse the data. Descriptive statistics, correlations and regression analyses were generated. Besides, ModGraph excel programme was adopted to graphically explain the moderating role of institutional pillars in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

Findings

The results revealed that institutional pillars of regulative (formal rules), normative (informal norms) and cultural cognitive (cognition) significantly moderate the relationship between financial intermediation and financial inclusion of the poor. Furthermore, the results also indicated that financial intermediation and institutional pillars have significant effects on financial inclusion of the poor in rural Uganda.

Research limitations/implications

The study focuses on only cross-sectional design, thus, leaving out longitudinal study. Future research using longitudinal data that explore behaviours of the poor over time could be useful. In addition, only quantitative data were used to measure variables under study and use of qualitative data were ignored. Thus, further studies using qualitative data are feasible.

Practical implications

Policymakers and advocates of financial inclusion in a developing country such as Uganda should adopt institutional pillars (regulative, normative and cultural-cognitive) in promoting financial intermediation in rural areas. The institutional pillars working in combination set the “rule of the game” or “humanly devise constraints” that guide economic exchange by promoting and limiting certain actions of actors in underdeveloped financial market as stipulated by North (1990) and Scott (1995).

Originality/value

To the best of the authors’ knowledge, this is the first attempt to examine the moderating role of institutional pillars under the theory of institutions in the relationship between financial intermediation and financial inclusion of the poor in a developing country setting. Indeed, institutions guide contract enforceability and information sharing in human interaction to lower transaction cost in the financial markets. This is missing in literature and theory of financial intermediation in promoting financial inclusion, especially in rural Uganda.

Details

International Journal of Ethics and Systems, vol. 34 no. 2
Type: Research Article
ISSN: 0828-8666

Keywords

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Article

John Holland

The paper aims to rethink empirical models and theory used in explaining banks and financial institutions (FIs) and to enhance the process of theory construction. This is…

Abstract

Purpose

The paper aims to rethink empirical models and theory used in explaining banks and financial institutions (FIs) and to enhance the process of theory construction. This is a provisional response to Colander et al. (2009) and Gendron and Smith-Lacroix’s (2013) call for a new approach to developing theory for finance and FIs.

Design/methodology/approach

An embryonic “behavioural theory of the financial firm” (BTFF) is outlined based on field research about banks and FI firms and relevant literature. The paper explores “conceptual connections” between BTFF and traditional finance theory ideas of financial intermediation. It does not seek to “integrate” finance theory and alternative theory in “meta theory” and has a more modest aim to improve theory content through “connections”.

Findings

The “conceptual connections” provide a means to develop ideas proposed by Scholtens and van Wensveen (2003). They are part of a “house with windows” intended to provide systematic means to “take data from the outside world” whilst continuously recognising “the complexities of the context” (Keasey and Hudson, 2007) to both challenge and build the core ideas of FT.

Research limitations/implications

The BTFF is a means to create “conversations” between academics, practitioners and regulators to aid theory construction. This can overcome the limitations of such an embryonic theory.

Practical implications

The ideas developed create new opportunities to develop finance theory, propose changes in banks and FIs and suggest changes in the focus of regulation.

Originality/value

Regulators can use the expanded conceptual framework to encourage theory development and to enhance accountability of banks and FIs to citizens.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

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Article

Vighneswara Swamy

The purpose of this paper is to analyze the macroeconomic significance of transaction costs in microfinance intermediation and explain how the deposit mobilization and…

Abstract

Purpose

The purpose of this paper is to analyze the macroeconomic significance of transaction costs in microfinance intermediation and explain how the deposit mobilization and micro lending impact the microfinance transaction costs. It presents some empirical evidence as building blocks for the theory of financial intermediation that aims at strengthening the efficiency of financial intermediation in the context of preferential credit and or the microfinance sector.

Design/methodology/approach

The study uses the panel data consisting of different groups of banks in India (such as public sector banks, private banks and foreign banks) data across a period from March 1993 to March 2009 to estimate the panel VAR model to determine the determinants of transaction cost model in financial intermediation. The study also uses the panel Granger causality analysis to test the direction of causation to know the behavior of the operating expense of the banks in their financial intermediation process.

Findings

The study reveals that there is a positive direct relationship between operating expense and priority sector lending by banks. The findings show that the transaction costs act as a barrier for the banking firms in microfinance intermediation; and, the banks are able to manage the transaction costs of microfinance intermediation with an increase in overall deposit mobilization and increased non-microfinance lending. The study recommends that there is a need to upscale the functional efficiency of microfinance intermediaries.

Originality/value

This study offers to bridge the research gap and adds novel information to the literature on microfinance intermediation. It is the first empirical paper showing the macroeconomic significance of transaction costs in microfinance intermediation.

Details

Management Decision, vol. 57 no. 9
Type: Research Article
ISSN: 0025-1747

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Article

George Okello Candiya Bongomin, John C. Munene, Joseph Mpeera Ntayi and Charles Akol Malinga

The purpose of this paper is to establish the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor…

Abstract

Purpose

The purpose of this paper is to establish the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda.

Design/methodology/approach

The paper uses structural equation modeling (SEM) through bootstrap approach constructed using analysis of moment structures to test for the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. Besides, the paper adopts Baron and Kenny’s (1986) approach to establish whether conditions for mediation by collective action exist.

Findings

The results revealed that collective action significantly mediates the relationship between financial intermediation and financial inclusion of the poor in rural Uganda. The findings further indicated that the mediated model had better model fit indices than the non-mediated model under SEM bootstrap. Furthermore, the results showed that both collective action and financial intermediation have significant and direct impacts on financial inclusion of the poor in rural Uganda. Therefore, the findings suggest that the presence of collective action boost financial intermediation for improved financial inclusion of the poor in rural Uganda.

Research limitations/implications

The study used quantitative data collected through cross-sectional research design. Further studies through the use of interviews could be adopted in future. Methodologically, the study adopted use of SEM bootstrap approach to establish the mediating effect of collective action. However, it ignored the Sobel’s test and MedGraph methods. Future studies could adopt the use of alternative methods of Sobel’s test and MedGraph. Additionally, the study focused only on semi-formal financial institutions. Hence, further studies may consider the use of data collected from formal and informal institutions.

Practical implications

Policy makers and managers of financial institutions should consider the role of collective action in promoting economic development, especially in developing countries. They should create structures and design financial services and products that promote collective action among the poor in rural Uganda.

Originality/value

Although several scholars have articulated financial inclusion based on both the supply and demand side factors, this is the first study to test the mediating role of collective action in the relationship between financial intermediation and financial inclusion of the poor in rural Uganda using SEM bootstrap approach. Theoretically, the study combines the role of collective action with financial intermediation to promote financial inclusion. Financial intermediation theory ignores the role played by collective action in the intermediation process between the surplus and deficit units.

Details

International Journal of Bank Marketing, vol. 37 no. 1
Type: Research Article
ISSN: 0265-2323

Keywords

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Article

Jonathan B. Justice and Cumhur Dülger

Much of the current U.S. academic literature on participatory budgeting is preoccupied with direct citizen involvement in budget formulation, reflecting a particular…

Abstract

Much of the current U.S. academic literature on participatory budgeting is preoccupied with direct citizen involvement in budget formulation, reflecting a particular normative theory of democracy. In this essay we suggest that U.S. academics can learn from a contemporary international community of practice concerned with “civil-society budget work”-a quasi-grassroots, quasi-pluralist movement with member organizations throughout the developing world-as well as from the budget exhibits mounted by the New York Bureau of Municipal Research at the turn of the last century. The budget-work movement employs third-party intermediation and advocacy, through all phases of the budget cycle. U.S. academics and budget-work practitioners can learn from each other, and this represents an unexploited opportunity for all concerned. We propose a program of locally based action research and trans-local evaluative synthesis.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 21 no. 2
Type: Research Article
ISSN: 1096-3367

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Article

Lei Chen, Jo Danbolt and John Holland

The purpose of this paper is to provide a new way of rethinking banking models by using qualitative research on intangibles. This is required because the banking sector…

Abstract

Purpose

The purpose of this paper is to provide a new way of rethinking banking models by using qualitative research on intangibles. This is required because the banking sector has been transformed significantly by the changing environment over the past two decades. The 2007-2009 financial crisis also added to concerns about existing bank business models.

Design/methodology/approach

Using qualitative data collected from interviews with bank managers and analysts in the UK, this paper develops a grounded theory of bank intangibles.

Findings

The model reveals how intangibles and tangible/financial resources interact in the bank value creation process, how they actively respond to environmental changes, how bank intangibles are understood by external observers such as analysts, and how bankers and analysts differ in their views.

Research limitations/implications

Grounded theory provides the means to further develop bank models as business models and theoretical models. This provides the means to think beyond conventional finance constructs and to relate bank models to a wider theoretical literature concerning intellectual capital, organisational and social systems theory, and “performativity”.

Practical implications

Such development of bank models and of a systems perspective is critical to the understanding of banks by bankers, by observers and for their “critical and reflexive performativity”. It also has implications for systemic risk and bank regulation.

Originality/value

The paper reveals the core role of intellectual capital (IC) in banks, in markets, and in developing theory and research at firm and system levels.

Details

Accounting, Auditing & Accountability Journal, vol. 27 no. 3
Type: Research Article
ISSN: 0951-3574

Keywords

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Article

Sephooko I. Motelle and Nicholas Biekpe

Asymmetric information impedes the efficiency of financial intermediation by widening the gap between lending and deposit rates. The cost of information gathering is high…

Abstract

Purpose

Asymmetric information impedes the efficiency of financial intermediation by widening the gap between lending and deposit rates. The cost of information gathering is high and often translates into high borrowing costs. Consequently, high borrowing costs may make it hard for borrowers to repay loans and increase the volume of non-performing loans – a recipe for financial instability. This study first compares the application of the simple GARCH (1,1) and BGARCH (1,1,1) models in the estimation of macroeconomic volatility and finds that the latter is more suitable for this purpose. Moreover, the choice of BGARCH (1,1,1) over the simple GARCH (1,1) implies different outcomes for Granger causality tests. This finding implies that the BGARCH (1,1,1) model minimises loss of important information when estimating macroeconomic volatility in developing countries. Second, the study uses bootstrap panel Granger causality to test the hypothesis that there is a causal relationship between financial instability and the financial intermediation spread in Southern African Customs Union (SACU). The findings support this hypothesis and underscore the importance of implementing sound macroeconomic policies for high and stable growth as well as effective monetary policy to attain and maintain low and stable prices in order to narrow the financial intermediation spread in SACU. The paper aims to discuss these issues.

Design/methodology/approach

This study uses bootstrap panel Granger causality to test the hypothesis that there is a causal relationship between financial instability and the financial intermediation spread in SACU.

Findings

The findings support this hypothesis and underscore the importance of implementing sound macroeconomic policies for high and stable growth as well as effective monetary policy to attain and maintain low and stable prices in order to narrow the financial intermediation spread in SACU.

Originality/value

Application of panel bootstrap Granger causality test to test for a casual relationship between financial intermediation spread and financial stability in the context of SACU.

Details

Managerial Finance, vol. 40 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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Book part

Richard L Constand

This paper presents an empirical analysis of trade credit supplied by Japanese manufacturing firms and General Trading Companies. After reviewing major trade credit models…

Abstract

This paper presents an empirical analysis of trade credit supplied by Japanese manufacturing firms and General Trading Companies. After reviewing major trade credit models and relevant Japanese literature, empirical tests examine the applicability of existing trade credit theories. Results indicate existing trade credit theory has little power to explain the level of trade credit supplied by Japanese firms. Instead, support is found for the information and risk sharing models in the Japanese keiretsu literature and the financial channeling process by which lending institutions supply General Trading Companies with liquidity that is, in turn, supplied to manufacturing firms.

Details

The Japanese Finance: Corporate Finance and Capital Markets in ...
Type: Book
ISBN: 978-1-84950-246-7

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Article

Abdulazeez Y.H. Saif-Alyousfi

The purpose of this paper is to examine the effect of bank specific, financial structure and macroeconomic factors on the shareholder value of banks in GCC economies…

Abstract

Purpose

The purpose of this paper is to examine the effect of bank specific, financial structure and macroeconomic factors on the shareholder value of banks in GCC economies during 2000–2017.

Design/methodology/approach

To estimate the model and analyze the data collected from the BankScope and World Bank World Development Indicator database, the author uses static panel estimation techniques as well as two-step difference and system dynamic generalized method of moments estimator.

Findings

The results show that banks that are highly dependent on non-traditional activities have higher shareholder value. Higher opportunity cost, capitalization and demand deposits result in a better bank shareholder value. Furthermore, banks with higher loan exposure and growth have better shareholder value. Non-performing loans and market risk have insignificant effects on bank shareholder value. However, GCC banks suffer from diseconomies of scale and scope. The author also finds that banks located in countries with high inflation rates, high rates of interest or in financially developed economies offer better shareholder value. High credit to the private sector reduces the bank shareholder value. The paper also provides evidence that the impact of financial turmoil on the shareholder value of the GCC banking sector is negative and significant and has severely weakened the GCC banking system.

Practical implications

The results of this study necessitate formulation of various policy measures that can counter the effects of shareholder value of banks.

Originality/value

The present study is among the first to address the influence of financial turmoil on bank shareholder value. It also studies new variables, such as demand deposits, non-performing loans, loan growth, non-interest revenue and off-balance sheet activities, which have not been examined in relation to bank shareholder value. It also applies both static techniques and dynamic panel estimation techniques to analyze the data. The analysis is carried out at the aggregate level as well as at the national level and also provides several robustness analyses using various model specifications.

Details

International Journal of Managerial Finance, vol. 16 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

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Book part

Mukund Narayanamurti and Jonathan A. Batten

Post-crisis policy measures in Asia have focussed on banking sector and market reform. The paper argues that in order to propel growth, banking and market reform in Asia…

Abstract

Post-crisis policy measures in Asia have focussed on banking sector and market reform. The paper argues that in order to propel growth, banking and market reform in Asia must be undertaken with the view that they are not mutually exclusive competitive tradeoffs. Rather banks and markets must be viewed as complementary supportive pillars in a financial system. Additionally, legal and functional reform must be undertaken simultaneously. The paper proposes that a likely consequence of doing so will enable creating a four-pillared multi-dimensional growth paradigm in the region to help restore and promote growth.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

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