The Mediating Effect of Information Asymmetry on the Relationship Between Financial Innovation and OTD Bank Performance
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Date
2022-11-04
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A.A.U
Abstract
The study analyzed the mediating effect of information asymmetry in the relationship between
financial innovation and bank performance. The paper followed a quantitative approach, cross sectional explanatory design, and survey method. The study used a questionnaire as a data
collection instrument. Ethiopian private and public banks established the study population. The
study used printed questionnaires to reach out to 328 survey participants. The researcher
collected 267 questionnaires that qualify for farther analysis. The study employed structural
equation modeling (SEM) and Smart PLS to analyze mediation effects. The result of the study
indicated moral hazard plays a mediation role in the relationship between Financial Innovation
and Bank Performance while adverse selection didn’t. Also, all the three financial innovation
forms - loan sale, loan syndication, and securitization –were indicated to have a direct link with
bank performance. Such result could be related to the less expensive source of funds, risk
diversification, enhanced liquidity, and expanded loan portfolio nature of the originate-to-distribute bank credit model. Thus, innovative financial mechanisms like the OTD model in
banking should be introduced in Ethiopia to channel adequate funds to the private sector, create
more jobs, and promote growth. Ethiopian banks should also devise techniques and enable the
establishment of relevant institutions that engage in risk management and assessment to address
the ex-post performance issues related to implementing the model.
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Keywords
Originate-to-Distribute; Loan Sale; Loan Syndication; Securitization; Adverse Selection; Moral Hazard