Economy-Wide Corruption and Bad Loans in Banking: International Evidence

Posted: 22 Mar 2016 Last revised: 19 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: 2011

Abstract

This study investigates the effects of economy-wide corruption on bad loans across a large sample of countries. The evidence reveals that greater corruption is associated with more bad loans. Loan defaults are lower in faster growing economies, in economies with higher lending rates and in nations in the Euro zone, ceteris paribus. However, other institutional controls, including central bank autonomy, financial underdevelopment, bank-based economies and transition nations fail to show appreciable effects on the incidence of bad loans. The findings are robust to an alternate corruption measure and to endogeneity of corruption. Policy implications are discussed.

Suggested Citation

Goel, Rajeev K. and Hasan, Iftekhar, Economy-Wide Corruption and Bad Loans in Banking: International Evidence (2011). Applied Financial Economics, Vol. 21, No. 7, pp.455-461, 2011, Available at SSRN: https://ssrn.com/abstract=2752636

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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