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Corruption and bank risk-taking: Evidence from emerging economies

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  • Chen, Minghua
  • Jeon, Bang Nam
  • Wang, Rui
  • Wu, Ji

Abstract

This paper addresses the impact of corruption on banks' risk-taking behavior, using bank-level data from more than 1200 banks in 35 emerging economies during the period 2000–2012. We find consistent evidence that higher levels of corruption increase the risk-taking behavior of banks, in favor of the “sand the wheel” view in the corruption-development nexus. In addition, we examine the indirect effects of corruption on bank risks, and find evidence that the impact of monetary policy on banks' risk-taking behavior is more pronounced with the increasing severity of corruption.

Suggested Citation

  • Chen, Minghua & Jeon, Bang Nam & Wang, Rui & Wu, Ji, 2015. "Corruption and bank risk-taking: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 24(C), pages 122-148.
  • Handle: RePEc:eee:ememar:v:24:y:2015:i:c:p:122-148
    DOI: 10.1016/j.ememar.2015.05.009
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    Cited by:

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    More about this item

    Keywords

    Corruption; Bank risk-taking; Risk-taking channel; Emerging economies;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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