Corruption In Lending Research Articles

Lending corruption and bank loan contracting: Cross-Country evidence

Using World Bank survey data, we document that banks extend more favorable loan terms to borrowers in countries with more lending corruption. This relation is stronger when borrowers have financing constraints but weaker in countries with stronger monitoring of foreign bank ownership or with stronger religiosity. We also find that banks in countries with high lending corruption have poor loan quality and earnings performance and are more susceptible to trouble during a financial crisis. Overall, our findings suggest that corruption “greases the wheels” for borrowers but is detrimental to bank shareholders.

The impact of bank credit corruption on firms' carbon emission reduction innovations: Empirical evidence from China

The study investigates the impact of bank lending corruption on enterprises' carbon emission reduction innovation behavior by analyzing data from the 2011–2020 China Enterprise Investment Environment Survey. The empirical findings highlight the significant influence of bank lending corruption on company carbon emission reduction innovation potential. Furthermore, the article focuses on the mechanism by which bank credit corruption affects firms' carbon emission reduction innovation ability, and discovers that bank credit corruption has a considerable impact on firms' assets, undermining firms' carbon emission reduction innovation and traditional energy companies and businesses in highly marketized areas are more negatively impacted by bank loan misconduct.

Corruption in Bank Lending: The Role of Culturally Endorsed Leadership Prototypes

This paper examines the impact of three culturally endorsed leadership prototypes on bank lending corruption. We bring together studies that approach the corruption of bank lending officers from the perspective of a principal-agent problem and studies from the leadership literature, suggesting leadership as an alternative to contractual solutions to agency problems. We hypothesize, based on these views, that culturally endorsed leadership styles that improve (worsen) the leader-subordinate relationships have a negative (positive) effect on bank lending corruption. Using a sample of around 3,500 firms from 36 countries, we find that the prosocial leadership prototype and the nonautonomous leadership prototype do not matter, whereas the self-serving leadership prototype has a positive and statistically significant effect on bank lending corruption. These findings are robust to the inclusion of various control variables in the regressions, and alternative estimation approaches, including ones that account for endogeneity concerns. Furthermore, we find that the power of bank regulators and the age of the credit information sharing mechanism play a moderating role in the relationship between the self-serving leadership prototype and bank lending corruption.

Individualism reduces borrower discouragement

Borrower discouragement contributes to reducing access to credit worldwide. In this study, we examine whether individualism influences the discouragement of borrowers. We used data on borrower discouragement and individualism at the firm level for a large dataset of 31,000 firms from 57 countries. We find that firms in individualistic countries are less likely to be discouraged from applying for loans. Furthermore, individualistic norms reduce borrower discouragement through their impact on lower corruption in lending and weak informal support networks. Our results hold after controlling for other cultural dimensions, addressing potential endogeneity and sample selection issues. Thus, our findings indicate that individualism reduces borrower discouragement, thereby improving access to credit of firms.

Structural Changes in Banking Industry after the 2008 Financial Crisis

The 2008 financial crisis is an evolution phase of the financial market in the thorough financial deregulation procedure that started at the end of the 1970s. After that, the bank capital requirements of the US have been revised in various significant ways, the goal of which is to support the banking system and decrease the potential of another crisis. The notion is that banks change to follow the business model of securitization and embrace social corporate responsibility more rigorously. Given what happened during the crisis, the Basel II Accord has been criticized. This paper will analyze the changes in the internal management and supervision of banks from the perspective of Basel reform, and explore the causes of the financial crisis and the deficiency in bank governance. Apart from that, three areas of banking industry, including capital structure, assets management and administering of credit risk, are demonstrated. According to the results, the banks have raised capital requirements, increased bank liquidity, reduced bank leverage, constantly evolved and found new ways to keep adequate performance level. At the same time, corruption in bank lending is effectively controlled. This paper further discusses the post-crisis measures in the banking sector, and demonstrates that the regulators need to consider the banks’ expansion and the increase of their capital level.

Prinsip Kehati-Hatian Bank dalam Penyaluran Kredit Untuk Mencegah Tindak Pidana Korupsi

Even though banking itself has the principle of prudence in every activity, this will not close the gap for corruption. The purpose of this study is to analyze the principles of bank prudence in lending to prevent criminal acts of corruption and analyze the prosecution and consideration of judges' sanctions in giving decisions on corruption in lending. In this study, there are three research approaches used, namely the statutory approach, the conceptual approach, and the case approach. Data is analyzed by identifying legal facts and eliminating irrelevant matters, collecting legal materials and non-legal materials, conducting a review of the proposed legal issues, accepting conclusions, and providing prescriptions. The results of this study indicate that the precautionary principles of banks in extending credit to prevent corruption are regulated in Article 8 of the Banking Law as amended by Law Number 10 of 1998, specifically regarding the explanation of Article 8 paragraph (1) . In terms of enforcement and considering the judge's sanctions in giving a decision on corruption in the distribution of credit, the judge at least looks at two things, namely if the defendant violates the principle of prudence and there is clear evidence that the defendant took advantage of his actions, then the defendant will be charged with an article on corruption. If the defendant violates the precautionary principle but is not proven to have actually taken personal advantage from his actions, the judge decides that the defendant has violated the Banking Law and not a criminal act of corruption.

Religiosity and corruption in bank lending

AbstractThis paper explores the effect of country‐level religiosity on corruption in bank lending. By using the World Business Environment Survey, we find that firms in more religious countries perceive a higher level of bank lending corruption. Furthermore, larger (smaller) foreign (government) ownership and more competition in a country's banking system attenuate the adverse effect of religiosity. The effect of religiosity carries over to bank loan performance. Our findings are confirmed by various robustness checks. This study contributes to a more balanced and comprehensive understanding of the role of religion in business ethics.

State ownership, macroprudential policies, and bank lending

We examine whether state ownership affects the effectiveness of macroprudential policies in curbing bank credit growth. Using a panel data set of 386banks from 50 countries around the world over the period 2001–2013, we find that macroprudential policies limit credit growth; however, the coefficient of the interaction between state ownership and macroprudential indices is positive and statistically significant. This finding suggests that bank state ownership weakens the effectiveness of macroprudential policies in reducing credit growth. This result is robust to controls for bank- and country-level variables and endogeneity concerns. Nonetheless, we report that the type of macroprudential policies, the type of bank loans, and other country-level characteristics, such as the extent of political connections and corruption in bank lending, can influence the joint role of state ownership and macroprudential policies.

Religiosity and Corruption in Bank Lending

This paper explores the effect of country-level religiosity on corruption in bank lending at the firm level. Using data from the World Business Environment Survey, we find strong and robust evidence that firms in more religious countries perceive a higher level of corruption in bank lending than firms in less religious countries. The economic significance of this effect is comparable to that of other well-known determinants of lending corruption. We further find that the banking market structure affects the relation between religiosity and lending corruption. Our findings are robust to alternative measures of religiosity and lending corruption. Finally, we address endogeneity concerns by using natural disaster exposure as an instrument for religiosity. Our study contributes to a more balanced and comprehensive understanding of the role of religion in finance.

Challenges of accountability in Nigeria: the role of deposit money bank

PurposeThe unhealthy drive for deposit in the banking sector has pushed many banks into unethical practices, thereby resulting in high-level corruption cases in the banking sector. The purpose of this study is to investigate the short- and long-run linkages between bank net interest income and deposit liabilities interacted with corruption, to establish the influence of corruption in deposit mobilisation drive of banks in Nigeria. Also, the study analysed the causal relationship between selected bank variables and fraud.Design/methodology/approachThe study used quarterly data on selected variables from 1Q 1993 to 4Q 2017 sourced from Nigerian Deposit Insurance Corporation (NDIC) annual reports and Central Bank of Nigeria (CBN) Statistical Bulletin of various issues. Deposit Money Bank various deposit liabilities are interacted with a corruption index and used as the independent variables, while bank earnings serve as the dependent variable. Error Correction Model (ECM) and Engel Granger approach to co-integration technique were used to analyse the data.FindingsThe findings reveal that various bank deposit liabilities interacted with corruption index has a negative effect on bank profitability in the long run, though only corrupt fixed deposit is statistically significant at the 5 per cent significance level. Bank total asset, total loan and advances and fraud have a significant effect on bank profitability at 1 and 10 per cent significance level. The findings also reveal that banks profit from corrupt fixed deposit and demand deposit in the short run.Social implicationsTextOriginality/valueThe literature is awash with bank lending corruption and various institutional factors such as competition among banks, credit bureau and information sharing about borrowers, bank supervisory policies, loan loss provisioning, bank ownership structure and regulatory environment and anti-corruption measures. The aspect of deposit mobilisation and corruption has not been well researched in literature; this study, therefore, fills the gap in the literature by examining the extent deposit money banks contributed to corruption in Nigeria through their cutthroat deposit mobilisation drive.

Does the speed of adjustment in regulation and supervision affect financial stability in developing countries?

Purpose This paper aims to examine the impact of bank regulation and supervision on financial stability. Financial sector reform, especially in developing countries, takes the form of a sudden adjustment in regulation and supervision. The main objective of the paper is to examine whether this fast and sudden adjustment in regulation and supervision has an undesirable impact on financial stability. Furthermore, the paper examines the role of real economic development in determining the impact of financial reform on financial stability. Design/methodology/approach Empirically, on a sample of 57 developing countries over the period 2000-2013, the author explored the impact of bank regulation and supervision on financial stability for different sub-groups of countries. The division is based on the real level of economic development and, most importantly, on the speed of adjustment in regulation and supervision. The study uses the cross-sectional–ordinary least square model. Each country has three observations (average 2000-2004, average 2005-2008 and average 2009-2013), which are convenient, with the date of the three surveys on regulation and supervision (2002-2006-2011). The period of the averages is selected to cover periods before and after the survey as regulation and supervision may be adopted before the survey and as its impact may persist for the period after. Findings The major finding of this study is that it supports the important role of the speed of adjustment in regulation and supervision, and its impact on financial stability. Soft adjustment in regulation and supervision has more positive impact on financial stability than fast adjustment. Activity restrictions have positive and significant impact on financial stability in soft adjustment countries’ group. On the other hand, in countries with fast adjustment, results show negative and statistically significant impact on financial stability, especially for supervisory independence. More time is needed for supervisors to adapt to new regulation and supervision and gain expertise to monitor financial condition of banks in a consistent manner. Results also show that the level of economic development is an important factor when testing the impact of regulation and supervision on financial stability. In lower income countries, more room is available for corruption in lending, which has a negative impact on financial stability. Practical implications This study advocates the necessity of taking the speed of adjustment in regulation and supervision by policymakers in developing countries, while initiating reform in the financial sector. Financial sector reform that takes the form of a sudden adjustment in regulation and supervision may have undesirable results in terms of financial stability. On the other hand, soft adjustment in regulation and supervision, which gives more room for supervisors to adapt and gain expertise, may have more positive impact on financial stability. Originality/value This paper is the first paper to explore new methods of calculating the speed of adjustment in regulation and supervision, and to examine whether the high speed of financial reform in developing countries has an undesirable impact on financial stability.

Lending Corruption and Bank Loan Contracting: Cross-Country Evidence

Lending corruption is an important agency problem for banks. Using data from the World Bank Business Environmental Survey, we find that in countries with more lending corruption, banks give more favorable loan terms to borrowers. This relation is stronger when firms are under more financing constraints, consistent with corruption being important to obtaining favorable loan terms when the supply of debt capital is tighter. In line with the expectation that monitoring constrains agency problems, this relation is weaker in countries with higher foreign ownership of banks or where Protestantism is the primary religion. In the syndicated loan market, participant banks are inclined to lend less in countries where lending corruption is more prevalent. Firms in countries with greater corruption prefer private bank debt over public bonds and are more leveraged. Banks in countries with more lending corruption have poor loan quality, worse earnings performance, and are more susceptible to trouble during a financial crisis. Overall, our findings suggest that corruption greases the wheels for borrowers but is detrimental to bank shareholders.

State Ownership and Debt Choice: Evidence from Privatization

Using a large sample of privatized firms, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. We further find that the relation is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft-budget-constraint view. Finally, in external validity tests, we find that state ownership affects other aspects of debt structure, such as debt maturity and debt security.

Culture and corruption in bank lending revisited

This paper aims to reassess the effects of culture on corruption in bank lending. These effects were first studied by prior studies which use Hofstede's cultural dimension data. The Hofstede's cultural data are constructed from survey data collected between 1967 and 1973. The data on corruption in bank lending taken from the world business environment survey (WBES), however, were collected between 1999 and 2000. This paper uses cultural data from the global leadership and organisational behaviour effectiveness (GLOBE) project which are constructed from survey data collected in the 1990s instead. The data from the GLOBE project are not only more recent but also provide more cultural dimensions than those of Hofstede. The results indicate that in-group collectivism still increases corruption in bank lending. The results suggest that assertiveness and uncertainty avoidance no longer have a significant effect on corruption in bank lending.

Culture and Corruption in Bank Lending Revisited

This paper aims to reassess the effects of culture on corruption in bank lending. These effects were first studied by prior studies which use Hofstede's cultural dimension data. The Hofstede's cultural data are constructed from survey data collected between 1967 and 1973. The data on corruption in bank lending taken from the world business environment survey (WBES), however, were collected between 1999 and 2000. This paper uses cultural data from the global leadership and organisational behaviour effectiveness (GLOBE) project which are constructed from survey data collected in the 1990s instead. The data from the GLOBE project are not only more recent but also provide more cultural dimensions than those of Hofstede. The results indicate that in-group collectivism still increases corruption in bank lending. The results suggest that assertiveness and uncertainty avoidance no longer have a significant effect on corruption in bank lending.

Is bank lending corruption self-regulatory?

This article puts forward the possibility that bank-client corruption tends to raise lending rates. If it does and if bank-official corruption counteracts this tendency, bank lending corruption might be seen as a self-regulatory phenomenon, having little if none at all influence on the real economy. An anti-lending corruption policy is deemed to be necessary only under a zero-lower-bound associated monetary policy and in any case, it should treat the two types of banking-sector corruption symmetrically. The negative effects of bank sector fraud on economic growth should be related to the large volume of cybercrime and money laundering rather than to fraud surrounding bank lending.

State Ownership and Debt Choice: Evidence from Privatization

In this paper we examine the link between state ownership and the choice of public debt versus bank debt in an international context. Using a large sample of privatized firms from 62 countries over the 2001-2014 period, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. This result holds after conducting several endogeneity and robustness tests. We further find that the positive relation between state ownership and bank debt reliance is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft budget constraint view. Finally, in external validity tests we find that state ownership affects other aspects of debt structure such as debt maturity and debt security.

Corruption in bank lending: The role of timely loan loss recognition

Building on the recent literature on corruption in bank lending, we examine the effect of country-level timely loan loss recognition by banks on lending corruption using a unique World Bank dataset that covers more than 3,600 firms across 44 countries. We find evidence consistent with timely loan loss recognition constraining lending corruption because it increases the likelihood of problem loans being uncovered earlier. In further analysis, we find timely loan loss recognition to be less associated with reduced corruption in countries where there is significant government ownership in the banking system and deposit insurance schemes. This evidence is consistent with timely loan loss recognition being less of a deterrent to lending corruption when banks are less disciplined by their capital providers.

Bank ownership structure, lending corruption and the regulatory environment

We empirically examine whether bank lending corruption is influenced by the ownership structure of banks, a country’s regulatory environment and its level of economic development. We find that corruption in lending is higher when state-owned banks or family-owned banks provide a higher proportion of credit to the economy, in both developed and developing countries. A stronger regulatory environment, either through a stronger supervisory regime or a higher quality of external audits, helps to curtail bank lending corruption if induced by family-controlled ownership, but not if induced by state-controlled ownership. We further find that controlled-ownership of banks by other banks contributes to reduce corruption in lending; the same applies to widely-held ownership of banks, but only for developed countries.

Bank Ownership Structure, Lending Corruption and the Regulatory Environment

We empirically examine whether bank lending corruption is influenced by the ownership structure of banks, a country's regulatory environment and its level of economic development. We find that corruption in lending is higher when state-owned banks or family-owned banks provide a higher proportion of credit to the economy, in both developed and developing countries. A stronger regulatory environment, either through a stronger supervisory regime or a higher quality of external audits, helps to curtail bank lending corruption if induced by family-controlled ownership, but not if induced by state-controlled ownership. We further find that controlled-ownership of banks by other banks contributes to reduce corruption in lending; the same applies to widely-held ownership of banks, but only for developed countries.