Corruption and Bank Risk-Taking: Evidence from Emerging Economies
49 Pages Posted: 7 May 2014
Date Written: May 5, 2014
This paper addresses the impact of corruption on bank risk-taking behavior, using the bank-level data of more than 1200 banks in 35 emerging economies during the period 2000-2012. We find consistent evidence that more severe corruption increases the risk-taking of banks, in favor of the “sand the wheel” view in the corruption-development nexus. In addition, we examine the interactive effect of corruption on monetary policy’s risk-taking channel, and find evidence that the impact of monetary policy on banks’ risk-taking is more salient with the severity of corruption. Corruption is also found dampening the pro-cyclical effect of economic growth on bank stability.
Keywords: Corruption; Bank risk-taking; Risk-taking channel; Emerging economies
JEL Classification: G21; O16; E52
Suggested Citation: Suggested Citation