IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v91y2009i3p361-388.html

Corruption in bank lending to firms: Cross-country micro evidence on the beneficial role of competition and information sharing

Author

Listed:
  • Barth, James R.
  • Lin, Chen
  • Lin, Ping
  • Song, Frank M.

Abstract

Building on the important study by Beck, Demirguc-Kunt, and Levine [2006. Bank supervision and corruption in lending. Journal of Monetary Economics 53, 2131-2163], we examine the effects of both borrower and lender competition as well as information sharing via credit bureaus/registries on corruption in bank lending. Using the unique World Bank data set (WBES) covering more than 4,000 firms across 56 countries with information on credit bureaus/registries, assembled by Djankov, McLiesh, and Shleifer [2007. Private credit in 129 countries. Journal of Financial Economics 84, 299-329], and bank regulation data collected by Barth, Caprio, and Levine [2006. Rethinking Bank Regulation: Till Angels Govern. Cambridge University Press, New York] to measure bank competition and information sharing, we find strong evidence that both banking competition and information sharing reduce lending corruption, and that information sharing also helps enhance the positive effect of competition in curtailing lending corruption. We also find that the ownership structure of firms and banks, legal environment, and firm competition all exert significant impacts on lending corruption.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jfinec:v:91:y:2009:i:3:p:361-388
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(08)00203-1
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
    3. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, Enero-Abr.
    4. Franklin Allen & Hans Gersbach & Jan-Pieter Krahnen & Anthony M. Santomero, 2001. "Competition Among Banks: Introduction and Conference Overview," Review of Finance, European Finance Association, vol. 5(1-2), pages 1-11.
    5. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    6. Baltensperger, Ernst, 1978. "Credit Rationing: Issues and Questions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(2), pages 170-183, May.
    7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    8. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
    9. repec:bla:econom:v:62:y:1995:i:248:p:461-78 is not listed on IDEAS
    10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    11. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    12. John H. Boyd & Gianni De Nicoló, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, June.
    13. Mr. Gianni De Nicolo & Abu M. Jalal & John H. Boyd, 2006. "Bank Risk-Taking and Competition Revisited: New Theory and New Evidence," IMF Working Papers 2006/297, International Monetary Fund.
    14. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 207-230.
    15. Mr. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid’s Impact on Growth?," IMF Working Papers 2005/126, International Monetary Fund.
    16. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    17. Allen N. Berger & Asli Demirgüč-Kunt & Joseph G. Haubrich & Ross Levine, 2004. "Introduction: Bank concentration and competition: an evolution in the making," Proceedings, Federal Reserve Bank of Cleveland, pages 433-451.
    18. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1203-1250.
    19. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    20. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2009. "Information sharing and credit: Firm-level evidence from transition countries," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 151-172, April.
    21. Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-451, June.
    22. Luc Laeven & Christopher Woodruff, 2007. "The Quality of the Legal System, Firm Ownership, and Firm Size," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 601-614, November.
    23. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    24. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
    25. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
    26. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    27. 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.
    28. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    29. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-1023, October.
    30. Asli Demirgüč-Kunt & Luc Laeven & Ross Levine, 2004. "Regulations, market structure, institutions, and the cost of financial intermediation," Proceedings, Federal Reserve Bank of Cleveland, pages 593-626.
    31. 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.
    32. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2007. "Reaching out: Access to and use of banking services across countries," Journal of Financial Economics, Elsevier, vol. 85(1), pages 234-266, July.
    33. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November.
    34. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 651-666.
    35. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
    36. Kallberg, Jarl G. & Udell, Gregory F., 2003. "The value of private sector business credit information sharing: The US case," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 449-469, March.
    37. Pagano, Marco & Jappelli, Tullio, 1993. "Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    38. Clarke, George R. G. & Xu, Lixin Colin, 2004. "Privatization, competition, and corruption: how characteristics of bribe takers and payers affect bribes to utilities," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2067-2097, August.
    39. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    40. 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.
    41. Laeven, Luc & Chhaochharia, Vidhi, 2007. "The Invisible Hand in Corporate Governance," CEPR Discussion Papers 6256, C.E.P.R. Discussion Papers.
    42. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    43. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    44. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
    45. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890, April.
    46. Baltensperger, Ernst, 1976. "The Borrower-Lender Relationship, Competitive Equilibrium, and the Theory of Hedonic Prices," American Economic Review, American Economic Association, vol. 66(3), pages 401-405, June.
    47. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    48. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
    49. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    50. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
    51. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    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. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
    2. Houston, Joel F. & Lin, Chen & Lin, Ping & Ma, Yue, 2010. "Creditor rights, information sharing, and bank risk taking," Journal of Financial Economics, Elsevier, vol. 96(3), pages 485-512, June.
    3. 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).
    4. Beck, T.H.L., 2006. "Creating an efficient financial system : Challenges in a global economy," Other publications TiSEM fa839175-173f-4972-a0e7-e, Tilburg University, School of Economics and Management.
    5. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    6. 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.
    7. An, Jiafu & Hou, Wenxuan & Lin, Chen, 2022. "Epidemic disease and financial development," Journal of Financial Economics, Elsevier, vol. 143(1), pages 332-358.
    8. Liu,Tingting & Ullah,Barkat & Wei,Zuobao & Xu,L. Colin, 2015. "The dark side of disclosure : evidence of government expropriation from worldwide firms," Policy Research Working Paper Series 7254, The World Bank.
    9. Marcelin, Isaac & Mathur, Ike, 2014. "Financial development, institutions and banks," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 25-33.
    10. Beck, T.H.L., 2010. "Legal Institutions and Economic Development," Other publications TiSEM 8aa07b48-ce55-4cf6-8754-7, Tilburg University, School of Economics and Management.
    11. 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.
    12. 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.
    13. Samuel Fosu & Albert Danso & Henry Agyei-Boapeah & Collins G. Ntim & Emmanuel Adegbite, 2020. "Credit information sharing and loan default in developing countries: the moderating effect of banking market concentration and national governance quality," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 55-103, July.
    14. Emenalo, Chukwunonye O. & Gagliardi, Francesca, 2020. "Is current institutional quality linked to legal origins and disease endowments? Evidence from Africa," Research in International Business and Finance, Elsevier, vol. 52(C).
    15. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Publications - Reports 7765, The World Bank Group.
    16. Beck, T.H.L. & Rahman, M.H., 2006. "Creating a more efficient financial system : Challenges for Bangladesh," Other publications TiSEM 8e036864-2358-419d-8538-7, Tilburg University, School of Economics and Management.
    17. Chen Lin & Yue Ma & Frank M. Song, 2012. "What Drives Bank Operating Efficiency? The Role of Bank Competition and Credit Information Sharing," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 4, Edward Elgar Publishing.
    18. Behr, Patrick & Sonnekalb, Simon, 2012. "The effect of information sharing between lenders on access to credit, cost of credit, and loan performance – Evidence from a credit registry introduction," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3017-3032.
    19. Ang, James B., 2013. "Are modern financial systems shaped by state antiquity?," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4038-4058.
    20. Krisztina Kis-Katos & Günther G. Schulze, 2013. "Corruption in Southeast Asia: a survey of recent research," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 27(1), pages 79-109, May.

    More about this item

    Keywords

    ;

    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:jfinec:v:91:y:2009:i:3:p:361-388. 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/inca/505576 .

    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.