Corruption in Bank Lending: The Role of Timely Loan Loss Recognition
61 Pages Posted: 13 Feb 2015 Last revised: 12 May 2019
Date Written: October 5, 2016
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.
Keywords: Timeliness, Loan Loss Recognition, Corruption, Banks
JEL Classification: G21, G38, M41
Suggested Citation: Suggested Citation