Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.

Corporate governance and development : an update

Abstract: What do we know about the links between economic development and corporate governance in emerging markets? Stijn Claessens and Burcin Yurtoglu have sifted through scores of academic studies on various countries, sectors, and business organizations - from state-owned enterprises to publicly listed companies - to determine how corporate governance can influence economic development and well being, and what is needed to promote good practices. The Focus 10 draws on new evidence that has become available since Focus 1: Corporate Governance and Development was published in 2003. While the paper reviews research literature, it is written to be accessible to the nonacademic audience: board members, investors, government regulators, development professionals, and other CG practitioners. Research findings sited in the Focus include: 1) improved corporate governance practices increase firm share prices; 2) operational performance is higher in better corporate governance countries; 3) well governed companies have less volatile stock prices in times of crisis; 4) companies with boards composed of a higher fraction of outsider or independent directors usually have a higher market valuation; 5) improvements in corporate governance quality lead to higher GDP growth, productivity growth, and the increased ratio of investment to GDP; 6) when a country's overall corporate governance and property rights systems are weak, voluntary and market corporate governance mechanisms have limited effectiveness; 7) large, more concentrated ownership can be beneficial, unless there is a disparity of control and cash flow rights; 8) the quality of shareholder protection positively correlates with the development of countries' capital markets; and 9) better corporate governance leads to a better developed financial system. The paper concludes by identifying several main policy and research issues that require further study. For example, more research is needed on family-owned, state-owned or controlled firms that predominate in many sectors and economies.

Competition in the Financial Sector and Growth: A Cross-Country Perspective

Abstract: Competition in the financial sector matters for a number of reasons. As in other industries, the degree of competition in the financial sector can affect the efficiency of the production of financial services. Also, again as in other industries, it can affect the quality of financial products and the degree of innovation in the sector. Specific to the financial sector is the link between competition and stability that has long been recognized in theoretical and empirical research and, most importantly, in the actual conduct of prudential policy towards banks. Importantly, it has also been shown, theoretically as well as empirically, that the degree of competition in the financial sector can effect the access of firms and households to financial services and external financing. The direction of the latter relationship is, however, unclear. Less competitive systems may lead to more access to external financing since banks are more inclined to invest in information acquisition and relationships with borrowers. When banking systems are less competitive, however, hold-up problems may lead borrowers to be less willing to enter such relationships. Furthermore, less competitive banking systems can be more costly and exhibit a lower quality of services thus providing less financing and encouraging less growth. These effects may further vary by the degree of a country’s financial sector development.

"Financial inclusion does not come easily" : an institutional analysis of the development of the microfinance markets

Abstract: Microfinance has grown from a niche development intervention in the 1990s to one that commands global influence and donor support. By 2006 microfinance had become part of financial sector development policy through the concept of financial inclusion. At the same time theoretical analysis of economic development increasingly focused on the role of institutions and getting institutions right - including for the financial sector – which has given rise to attempts to theorize gradual institutional change. This convergence of policy, and theoretical emphasis on institutions, raises the central question as to what institutions and institutional changes are necessary for the financial sector to effectively serve poor people. The experience of microfinance sector growth over a decade in two countries has been investigated using a ‘micro-ethnographic’ methodology to respond to this question. The research finds that a focus on institutional functions rather than institutional forms aids definitional precision and allows comparability across markets. Social norms underpinned the development of institutional functions, as theories of social embeddedness suggest. These norms also became integrated into institutional functions through the process of change, adding to critiques of externally imposed ‘best practice’ institutional blueprints. Further, beyond the widely accepted institutional functions which the rest of the financial market needs to operate efficiently, this research highlights the importance of a constitutional function (or law) to include poor people in the formal financial system, appropriate supervision for microfinance providers and support for the development of microfinance. Recent theories of institutional change offer insights beyond path dependency in identifying spaces for change and how changes will ‘stick’. However, to better analyse change at the level of particular institutional arenas, greater elaboration is needed of: how to incorporate multiple sets of agents (including external development agents) and multiple institutional functions; appropriate time-frames for analysis and processes of actor engagement.