Corruption and Bank Risk-Taking: Evidence from Emerging Economies

49 Pages Posted: 7 May 2014

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business; Drexel University-School of Economics

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management

Rui Wang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management

Date Written: May 5, 2014

Abstract

This paper addresses the impact of corruption on bank risk-taking behavior, using the bank-level data of more than 1200 banks in 35 emerging economies during the period 2000-2012. We find consistent evidence that more severe corruption increases the risk-taking of banks, in favor of the “sand the wheel” view in the corruption-development nexus. In addition, we examine the interactive effect of corruption on monetary policy’s risk-taking channel, and find evidence that the impact of monetary policy on banks’ risk-taking is more salient with the severity of corruption. Corruption is also found dampening the pro-cyclical effect of economic growth on bank stability.

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

JEL Classification: G21; O16; E52

Suggested Citation

Jeon, Bang Nam and Wu, Ji and Chen, Minghua and Wang, Rui, Corruption and Bank Risk-Taking: Evidence from Emerging Economies (May 5, 2014). Available at SSRN: https://ssrn.com/abstract=2433068 or http://dx.doi.org/10.2139/ssrn.2433068

Bang Nam Jeon

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Drexel University-School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Ji Wu (Contact Author)

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management ( email )

Gezhi Building 1201
555 Liutai Revenue, Wenjiang District
Chengdu, Sichuan 610074
China

Rui Wang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

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