IDEAS home Printed from https://ideas.repec.org/a/eee/jaecon/v63y2017i2p454-478.html
   My bibliography  Save this article

Corruption in bank lending: The role of timely loan loss recognition

Author

Listed:
  • Akins, Brian
  • Dou, Yiwei
  • Ng, Jeffrey

Abstract

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.

Suggested Citation

  • Akins, Brian & Dou, Yiwei & Ng, Jeffrey, 2017. "Corruption in bank lending: The role of timely loan loss recognition," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 454-478.
    • Handle: RePEc:eee:jaecon:v:63:y:2017:i:2:p:454-478
    DOI: 10.1016/j.jacceco.2016.08.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165410116300581
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jacceco.2016.08.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    2. Flannery, Mark J & Sorescu, Sorin M, 1996. "Evidence of Bank Market Discipline in Subordinated Debenture Yields: 1983-1991," Journal of Finance, American Finance Association, vol. 51(4), pages 1347-1377, September.
    3. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2002. "Courts: the Lex Mundi Project," NBER Working Papers 8890, National Bureau of Economic Research, Inc.
    4. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    5. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    6. Calomiris, Charles W. & Fisman, Raymond & Wang, Yongxiang, 2010. "Profiting from government stakes in a command economy: Evidence from Chinese asset sales," Journal of Financial Economics, Elsevier, vol. 96(3), pages 399-412, June.
    7. Bushman, Robert M., 2014. "Thoughts on financial accounting and the banking industry," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 384-395.
    8. Maechler, Andrea M. & McDill, Kathleen M., 2006. "Dynamic depositor discipline in US banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1871-1898, July.
    9. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    10. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    11. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    12. Li, Kai & Yue, Heng & Zhao, Longkai, 2009. "Ownership, institutions, and capital structure: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 471-490, September.
    13. Hanwen Chen & Jeff Zeyun Chen & Gerald J. Lobo & Yanyan Wang, 2011. "Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 28(3), pages 892-925, September.
    14. Chen, Shimin & Sun, Zheng & Tang, Song & Wu, Donghui, 2011. "Government intervention and investment efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 259-271, April.
    15. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
    16. Beatty, Anne & Liao, Scott, 2011. "Do delays in expected loss recognition affect banks' willingness to lend?," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 1-20, June.
    17. Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 58-76, February.
    18. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    19. Holthausen, Robert W. & Watts, Ross L., 2001. "The relevance of the value-relevance literature for financial accounting standard setting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 3-75, September.
    20. Chen, Yunling & Liu, Ming & Su, Jun, 2013. "Greasing the wheels of bank lending: Evidence from private firms in China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2533-2545.
    21. Meghana Ayyagari & Asli Demirgüc-Kunt & Vojislav Maksimovic, 2008. "How Well Do Institutional Theories Explain Firms' Perceptions of Property Rights?," The Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1833-1871, July.
    22. Desai, Mihir A. & Dyck, Alexander & Zingales, Luigi, 2007. "Theft and taxes," Journal of Financial Economics, Elsevier, vol. 84(3), pages 591-623, June.
    23. Christensen, Hans B. & Hail, Luzi & Leuz, Christian, 2013. "Mandatory IFRS reporting and changes in enforcement," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 147-177.
    24. Guedhami, Omrane & Pittman, Jeffrey A. & Saffar, Walid, 2009. "Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 151-171, December.
    25. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 559-594, December.
    26. Kaufmann, Daniel & Batra, Geeta & Stone, Andrew H. W., 2003. "The Firms Speak: What the World Business Environment Survey Tells Us about Constraints on Private Sector Development," MPRA Paper 8213, University Library of Munich, Germany.
    27. Alain Laurin & Giovanni Majnoni, 2003. "Bank Loan Classification and Provisioning Practices in Selected Developed and Emerging Countries," World Bank Publications - Books, The World Bank Group, number 15157, December.
    28. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
    29. Mr. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Working Papers 1998/063, International Monetary Fund.
    30. Lammertjan Dam & Michael Koetter, 2012. "Bank Bailouts and Moral Hazard: Evidence from Germany," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2343-2380.
    31. Larcker, David F. & Rusticus, Tjomme O., 2010. "On the use of instrumental variables in accounting research," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 186-205, April.
    32. Beatty, Anne & Liao, Scott, 2014. "Financial accounting in the banking industry: A review of the empirical literature," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 339-383.
    33. Ginka Borisova & William L. Megginson, 2011. "Does Government Ownership Affect the Cost of Debt? Evidence from Privatization," The Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2693-2737.
    34. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309.
    35. Thorsten Beck & Asli Demirgüç‐Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    36. Ellen Gaston & Mr. In W Song, 2014. "Supervisory Roles in Loan Loss Provisioning in Countries Implementing IFRS," IMF Working Papers 2014/170, International Monetary Fund.
    37. Allen Berger & Rima Turk-Ariss, 2015. "Do Depositors Discipline Banks and Did Government Actions During the Recent Crisis Reduce this Discipline? An International Perspective," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(2), pages 103-126, October.
    38. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    39. Wei, Zuobao & Xie, Feixue & Zhang, Shaorong, 2005. "Ownership Structure and Firm Value in China's Privatized Firms: 1991–2001," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 87-108, March.
    40. Houston, Joel F. & Lin, Chen & Ma, Yue, 2011. "Media ownership, concentration and corruption in bank lending," Journal of Financial Economics, Elsevier, vol. 100(2), pages 326-350, May.
    41. Udell, Gregory F., 1989. "Loan quality, commercial loan review and loan officer contracting," Journal of Banking & Finance, Elsevier, vol. 13(3), pages 367-382, July.
    42. Wang, Qian & Wong, T.J. & Xia, Lijun, 2008. "State ownership, the institutional environment, and auditor choice: Evidence from China," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 112-134, September.
    43. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    44. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    45. Barth, James R. & Lin, Chen & Lin, Ping & Song, Frank M., 2009. "Corruption in bank lending to firms: Cross-country micro evidence on the beneficial role of competition and information sharing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 361-388, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Yu & Xu, Jian, 2022. "Residual state ownership, foreign ownership and firms' financing patterns," Emerging Markets Review, Elsevier, vol. 51(PA).
    2. Beck, Thorsten, 2006. "Creating an efficient financial system : challenges in a global economy," Policy Research Working Paper Series 3856, The World Bank.
    3. Fungáčová, Zuzana & Kochanova, Anna & Weill, Laurent, 2015. "Does Money Buy Credit? Firm-Level Evidence on Bribery and Bank Debt," World Development, Elsevier, vol. 68(C), pages 308-322.
    4. Sadok El Ghoul & Omrane Guedhami & Chuck C. Y. Kwok & Xiaolan Zheng, 2016. "Collectivism and Corruption in Commercial Loan Production: How to Break the Curse?," Journal of Business Ethics, Springer, vol. 139(2), pages 225-250, December.
    5. Haider, Zulfiquer Ali & Liu, Mingzhi & Wang, Yefeng & Zhang, Ying, 2018. "Government ownership, financial constraint, corruption, and corporate performance: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 76-93.
    6. Lin, Chen & Lin, Ping & Zou, Hong, 2012. "Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 311-330.
    7. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Publications - Reports 7765, The World Bank Group.
    8. Barth, James R. & Lin, Chen & Lin, Ping & Song, Frank M., 2009. "Corruption in bank lending to firms: Cross-country micro evidence on the beneficial role of competition and information sharing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 361-388, March.
    9. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
    10. Lin, Chen & Man-lai Wong, Sonia, 2013. "Government intervention and firm investment: Evidence from international micro-data," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 637-653.
    11. Knack, Steve & Xu, Lixin Colin, 2017. "Unbundling institutions for external finance: Worldwide firm-level evidence," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 215-232.
    12. Li, Guangzi & Chan, Kam C., 2021. "Anti-corruption intensity and loan contracting: Evidence from non-state owned firms in China," Emerging Markets Review, Elsevier, vol. 49(C).
    13. Liu, Tingting & Liu, Yu & Ullah, Barkat & Wei, Zuobao & Xu, Lixin Colin, 2021. "The dark side of transparency in developing countries: The link between financial reporting practices and corruption," Journal of Corporate Finance, Elsevier, vol. 66(C).
    14. Fungáčová, Zuzana & Kochanova, Anna & Weill, Laurent, 2015. "Does Money Buy Credit? Firm-Level Evidence on Bribery and Bank Debt," World Development, Elsevier, vol. 68(C), pages 308-322.
    15. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    16. Chen, Yunling & Liu, Ming & Su, Jun, 2013. "Greasing the wheels of bank lending: Evidence from private firms in China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2533-2545.
    17. Ashraf, Badar Nadeem & Zheng, Changjun & Jiang, Chonghui & Qian, Ningyu, 2020. "Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods," Research in International Business and Finance, Elsevier, vol. 52(C).
    18. Meghana Ayyagari & Asli Demirguc-Kunt & Vojislav Maksimovic, 2021. "Are large firms born or made? Evidence from developing countries," Small Business Economics, Springer, vol. 57(1), pages 191-219, June.
    19. Di Fabio, Costanza & Ramassa, Paola & Quagli, Alberto, 2021. "Income smoothing in European banks: The contrasting effects of monitoring mechanisms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    20. Małgorzata Olszak & Mateusz Pipień & Sylwia Roszkowska & Iwona Kowalska, 2018. "The Impact of Capital on Lending in Economic Downturns and Investor Protection – the Case of Large EU Banks," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(2), pages 133-167, June.

    More about this item

    Keywords

    Timeliness; Loan loss recognition; Corruption; Banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaecon:v:63:y:2017:i:2:p:454-478. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jae .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.