Niels Hermes

The Empirics of Microfinance: What Do We Know?

Microfinance has received a lot of attention recently, both from policy makers as well as in academic circles. Two of the main topics that have been hotly debated are explaining joint liability group lending and its implications for reducing information asymmetries, and the trade-off between the financial sustainability and outreach of microfinance programmes. This Feature contains three novel empirical contributions providing new insights with respect to why and how joint liability group lending works. It also contains the first large-scale systematic analysis of the trade-off between financial performance and outreach of microfinance institutions.

The short-term effects of foreign bank entry on domestic bank behaviour: Does economic development matter?

Abstract This paper investigates the short-term effects of foreign bank entry on the behaviour of the domestic banking sector. We hypothesise that these effects are dependent on the level of economic development of the host country. Our investigation shows that at lower levels of economic development foreign bank entry is generally associated with higher costs and margins for domestic banks. At higher levels of economic development the effects appear to be less clear: foreign bank entry is either associated with a fall of costs, profits and margins of domestic banks, or is not associated with changes in these domestic bank variables.

Financial system development in transition economies

This paper provides an overview of the major issues with respect to financial system development in transition economies, which were discussed at a conference in Groningen, the Netherlands, December 1997. After a brief remark on the role of financial system design during economic transition, the paper focuses on the role of stock markets in the process of financial intermediation with emphasis on the role of regulations in these markets, the role of deposit insurance to improve bank system stability, and the importance of an independent central bank, measurement issues relating to central bank independence and its impact on inflation and growth. ” 2000 Elsevier Science B.V. All rights reserved.

Corporate governance in the Netherlands : An overview of the application of the Tabaksblat Code in 2004

This article examines the overall acceptance of the best practice provisions contained in the Dutch corporate governance code and identifies those that receive comparably less agreement among 150 Dutch listed companies in 2004. The findings indicate a high level of compliance with the Code. Moreover, the extent of compliance is positively associated with company size. Provisions related to the remuneration of board members, independence of supervisory board members, and requirements with respect to internal control systems stand out when it comes to non-compliance. In addition, the nature and content of the explanations provided for non-compliance are remarkably similar across companies, which may indicate symbolic compliance with the Codes best practice provisions.

Changing the conditions for development aid : a new paradigm

The publication of the Assessing Aid report of the World Bank in 1998 has stimulated the debate on the future of development aid and aid policies. This collection contains a number of studies that aim to contribute to this debate. In this introduction we put the discussion on the future of development aid into perspective and summarise the main findings of the other contributions in this collection. We focus on two issues: the aid effectiveness debate before and after the Assessing Aid report, and the discussion on policy conditionality and good governance. Our main conclusions are that the evidence on aid effectiveness provided in the World Bank report is less convincing than has been claimed and that the good governance criterion proposed by the World Bank for distributing aid comes down to introducing conditionality in disguise.

The Effect of Financial Liberalization on Capital Flight in African Economies

Summary In this paper we assess the effects of financial liberalization on capital flight in African economies. A portfolio model, in which capital flight is one of the assets, is estimated on a sample of nine African countries for 1970–91. The estimation results suggest that financial liberalization induces a reduction in capital flight. After augmenting the model with submodels for the banking sector, the government sector and the external sector, we conduct simulation experiments involving an interest rate deregulation, a decrease in reserve requirements and a change in exchange rate policy. The simulation results show that capital flight is reduced by all the three financial liberalization measures. The effects, however, are very small. Considering both the estimation and simulation results, we conclude that financial liberalization policies are useful in attempts to reduce capital flight in African economies, but per se the policies may not be the panacea.

Competition and the Performance of Microfinance Institutions

This article examines the relationship between competition and the performance of Microfinance Institutions (MFIs). We measure competition by constructing a Lerner index. Next, we assess the association between increased competition among MFIs on the one hand and outreach and loan repayment performance of individual MFIs on the other. The empirical investigation is based on data from 362 MFIs in 73 countries for the period 1995–2008. Based on our analysis we do find a general trend of increased competition in microfinance during the last decade. Moreover, our econometric analysis provides evidence that competition among MFIs is negatively associated with their outreach and repayment performance.

Corporate governance codes in the European Union: Are they driven by external or domestic forces?

Purpose – The paper seeks to analyze to what extent the contents of corporate governance codes of countries in the European Union are driven by external (internationally accepted corporate governance best practices) or domestic (institutions, culture, etc.) forces. Design/methodology/approach – The paper compares the contents of codes with the priorities set by the European Commission with respect to modernising company law and enhancing corporate governance in the European Union. Findings – The analysis shows that the majority of the codes of the European Union countries are not in full accordance with the priorities of the European Commission. This may reflect that codes are driven by both external and domestic forces. Whether there is a difference between Western European and Central and Eastern European countries in this respect is also investigated, but no difference, at least at the aggregate level of the codes of both groups of countries has been found. Research limitations/implications – The analysis excludes five (prospective) European Union members. The analysis does not provide a comprehensive overview of domestic determinants of why codes of individual countries diverge from the European Union communication. Future research should systematically explore whether and to what extent domestic forces are indeed determining the contents of codes and, if so, which country-specific forces have an impact on establishing code contents. Originality/value – This paper is the first comprehensive attempt to analyse the contents of corporate governance codes. Such an analysis is important to understand the underlying forces that shape the diffusion of codes and their contents.

Flight Capital and its Reversal for Development Financing

In this paper, we review the theoretical and empirical literature on capital flight. First, we discuss the measurement of capital flight. Next, we provide information on the magnitude as well as the ‘burden’ of capital flight for a selected set of developing countries in four regions of the world (South Asia, East Asia, Sub-Saharan Africa and Latin America). Moreover, we review the literature on the determinants of capital flight and provide an overview of empirical studies that have analysed the determinants of capital flight. In the light of the discussion of these determinants, we assess the prospects for flight capital reversal. We conclude by proposing some policy measures to stem continued capital flight and induce capital flight reversal.

Foreign bank presence, domestic bank performance and financial development

This article analyses the relationship between foreign bank presence and the performance of the domestic banking sector and takes into account the role of the level of development of the financial sector of the recipient country. We use data of 982 banks in 48 countries for 1990-96. We find support for the hypothesis that financial development does matter. In particular, we show that foreign bank presence is associated with higher costs and margins of domestic banks at low levels of financial development while it is associated with falling costs and margins of domestic banks at higher levels of financial development.