Corruption in Bank Lending to Firms : Do Competition and Information Sharing Matter?

Extending the important study by Beck, Demirguc-Kunt and Levine (2007), we examine the effects of borrower and lender competition and information sharing via credit registries/bureaus on corruption in bank lending. Using the unique dataset of the World Business Environment Survey (WBES) compiled by the World Bank, and information on credit registries/bureaus and bank regulation assembled by other scholars, we find (1) strong evidence that banking competition reduces lending corruption and (2) the first and robust evidence that information sharing among banks is conducive in reducing corruption in bank lending. We also find that government- and foreign-owned firms as well as exporting firms tend to be subject to less lending corruption, objective courts and better law enforcement tend to reduce lending corruption, private and foreign ownership of the banking industry are associated with more integrity in lending, and that more private monitoring of banks helps to curtail lending corruption. These findings are consistent with the predictions of a Nash bargaining model