How Corruption Affects Bank Lending in Russia

Abstract:     
The aim of this study is to investigate the impact of corruption on bank lending in Russia. This issue is of major interest in order to understand the causes of financial underdevelopment and the effects of corruption in Russia. We use regional measures of corruption and bank-level data to perform this investigation. Our main estimations show that corruption hampers bank lending in Russia. We investigate whether this negative role of corruption is influenced by the degree of bank risk aversion, but find no effect. The detrimental effect of corruption is only observed for loans to households and firms, in opposition to loans to government. Additional controls confirm the detrimental impact of corruption on bank lending. Therefore, our results provide motivations to fight corruption to favor bank lending in Russia.

Keywords: Corruption, Bank, Russia, Financial development, Economic transition

JEL Classification: G20, K4, P2

Accepted Paper Series