Corruption and Bank Conduct: International Evidence

19 Pages Posted: 14 Jul 2010 Last revised: 20 Nov 2010

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2010

Abstract

Using recent cross-national data on more than 100 nations, this study investigates the financial effects of economy-wide institutional quality (corruption) on various bank activities: (i) the ratio of nonperforming loans to total loans; (ii) the capital-to-assets ratio; (iii) the liquid-reserves-to-assets ratio; and (iv) interest rate spread. In the context of the banking and financial sectors, corruption can proxy for a number of exogenous influences, including institutional quality and riskiness in a country. Other things being the same, monitoring and enforcement institutions are particularly weaker in more corrupt nations (see Becker and Stigler, 1974). This might imply lax monitoring of perpetrators of financial fraud or more lenient punishment in these countries. Corruption also increases the chances of apprehending innocent people.

Keywords: corruption, interest rate, nonperforming loans, liquid reserves, central bank autonomy, bank-based economies

JEL Classification: K42, G2, G3

Suggested Citation

Goel, Rajeev K. and Hasan, Iftekhar, Corruption and Bank Conduct: International Evidence (January 1, 2010). Universita' Bocconi, Paolo Baffi Centre on Central Banking and Financial Regulation Research Paper Series No. 2010-71. Available at SSRN: https://ssrn.com/abstract=1638901 or http://dx.doi.org/10.2139/ssrn.1638901

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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