Corruption and Bank Conduct: International Evidence
19 Pages Posted: 14 Jul 2010 Last revised: 20 Nov 2010
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Corruption and Bank Conduct: International Evidence
Corruption and Bank Conduct: International Evidence
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: Suggested Citation
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