انتشار خارج از ترازنامه نوآوری های مالی : متمم اطلاعات و رقابت در بازار

By studying the Hong Kong banking industry, the objective of this study is to examine the role of information complementarity and market competition in governing the diffusion of off-balance-sheet (OBS) financial innovations. Specifically, two OBS financial innovations are information complementary if the adoption of one lowers the uncertainty of adopting another. In addition, market competition may speed up the diffusion of OBS financial innovations because competitive firms are able to capture the full profit potential from successful innovations. A simultaneous equation model is devised to estimate the impacts of information complementarity, market competition, and a number of other factors on the diffusion of OBS financial innovations. Results of estimation suggest that information complementarity and market competition are the primary driving forces behind the diffusion process.

Over the past two decades, there has been a massive increase in the development of new financial instruments, many of which have been off-balance-sheet (OBS) financial innovations. OBS financial innovations arise from forward, swap and option transactions undertaken in the foreign exchange, interest rate and equity markets. A wave of financial innovation in the banking sector has swept through Hong Kong's financial markets in recent years. One of the most important strategic developments has been the move by banks into new areas of OBS activities. The interest in the process of financial innovation stems from the significant impact it can have on the practice and characteristics of financial institutions and markets. OBS activities have both risk-increasing and risk-reducing attributes. Increased OBS earnings can potentially compensate for increased OBS risk exposure. In addition, incomes from OBS activities provide a key source of noninterest income for many banks, especially the largest and most creditworthy ones. Recent growth in financial innovation has transformed the Hong Kong banking industry. Interestingly, the empirical pattern of adopting OBS financial innovations by banks is very much similar to that of adopting technological innovations; adoptions are usually delayed and nonsynchronous. Previous research on the diffusion of financial innovations has emphasized the importance of firm size and creditworthiness (see, e.g., Jagtiani et al., 1995a and Jagtiani et al., 1995b). By studying the Hong Kong banking industry, the objective of this study is to examine the role information complementarity and market competition in governing the diffusion of OBS financial innovations. The risk of adopting any innovations is the uncertainty about potential costs and benefits. Two financial innovations are information complementary if the adoption of one lowers the uncertainty of adopting another. The adoptions of some innovations may lower the risk and uncertainty of adopting others because the adopting banks are able to collect useful information about the profitability of other nonadopted financial innovations. For instance, information complementarity might arise from sharing customer information as different types of OBS products are often offered to the same pool of customers. As such, different types of OBS financial innovations are able to share a common customer base with reputable credit relationship with banks. Based on a static production function, Jagtiani et al. (1995a) find no conclusive evidence for cost complementarity between different types of financial products. In this study, we propose that the diffusion process of financial innovations with information complementarity is essentially a dynamic process of learning and information sharing, in which the adoption of some innovations will stimulate the adoption of others. This study investigates the diffusion process of OBS financial innovations by incorporating this dynamic nature of information complementarity into the diffusion model. Evidenced by the empirical results from this study, information complementarity acts as a major driving force behind the diffusion process. Market competition is another factor governing the diffusion of OBS financial innovations. According to Arrow (1962), firms engaging in neck-to-neck competition are more innovative than monopolist because the former can extract the full profit potential from innovations, while the latter is already making abnormal profit in the preinnovation period. We will call this ‘Arrow effect’ throughout the rest of this article. Schumpeter, 1934 and Schumpeter, 1942 holds an opposite view; that is, large firms with market power are proportionately more innovative than small firms because the former are more able to finance a large number of parallel R&D projects to reduce uncertainty and to benefit from economies of scale and scope. We will call this ‘Schumpeterian effect’ throughout the rest of this article. However, the Schumpeterian effect is supposed to be insignificant in the case of financial innovations because innovations in financial products, unlike most scientific innovations, require little capital investment and can be developed within a very short period of time. As a matter of fact, empirical findings from this study suggest that the Arrow effect dominates and that market competition in the banking industry encourages the diffusion of OBS financial innovations. This article is organized as follows. Section 2 describes the model specifications and sets up major hypotheses. Section 3 describes the data characteristics. Section 4 discusses the results of estimation. Finally, the whole article is concluded by Section 5.

In this study, we examine the impacts of information complementarity and market competition on the diffusion of off-balance-sheet (OBS) financial innovations in the Hong Kong banking industry. In particular, three types of OBS financial innovations are studied carefully, namely, contingent liabilities, exchange rate contracts, and interest rate contracts. Information complementarity in adopting different types of OBS financial innovations occurs if the adoption of an innovation lowers the risk and uncertainty of adopting others. The major reason for information complementarity between different types of OBS financial innovations to occur is information sharing, such as the sharing of information on profitability and a common customer base. Information complementarity implies that the diffusion paths for different types of OBS financial innovation are interdependent on each other. The impacts of market competition on the diffusion of OBS financial innovations are twofold. First, it encourages innovative activities as competitive firms are able to capture the full profit potential from successful innovations. Second, it discourages innovative activities if monopoly profits are needed to finance expensive R&D projects. Because the adoptions of OBS financial innovations could be accomplished with negligibly low costs and within a short period of time, we expect the positive impact to dominate. Formal statistical analyses suggest that information complementarity is the main driving force behind the diffusion of OBS financial innovations. Interestingly, the strength of information complementarity in inducing diffusions is related to the time sequence of adoptions—the earlier-adopted OBS financial innovations tend to have a stronger stimulating effect on the later-adopted ones, and vice versa. This finding lends additional support to the existence of information complementarity between different types of OBS financial innovations. In addition, we find a positive impact of market competition, and an insignificant impact of market power, on the diffusion of OBS financial innovations. Among the other exogenous variables we examine, creditworthiness can speed up the diffusion of OBS financial innovations, but firm size is not an important factor in governing the diffusion process.