Using a conviction-based measure, we fnd that local (state-level) public corruption exerts a negative efect on the lending activity of US banks. Our baseline estimations show that the diference in public corruption between, for example, Alabama, where corruption is high, and Minnesota, where corruption is low, implies that banks headquartered in the former state grant 0.55% less credit (or $3.52 million for the average bank) ceteris paribus. Using proxies for relationship lending and monitoring, we also fnd that these bank characteristics weaken the negative efect of public corruption on lending. These results are robust to tests that address endogeneity, to the use of perception-based measures of corruption, and after controlling for credit demand conditions. In further analysis, we show that these efects are more evident for smaller banks and banks operating in a single state. These fndings provide evidence that public corruption could facilitate information asymmetry in the lending market and, thus, could hinder local development by reducing bank credit.

Local Public Corruption and Bank Lending Activity in the United States

Leonida, Leone
Ultimo
2021-01-01

Abstract

Using a conviction-based measure, we fnd that local (state-level) public corruption exerts a negative efect on the lending activity of US banks. Our baseline estimations show that the diference in public corruption between, for example, Alabama, where corruption is high, and Minnesota, where corruption is low, implies that banks headquartered in the former state grant 0.55% less credit (or $3.52 million for the average bank) ceteris paribus. Using proxies for relationship lending and monitoring, we also fnd that these bank characteristics weaken the negative efect of public corruption on lending. These results are robust to tests that address endogeneity, to the use of perception-based measures of corruption, and after controlling for credit demand conditions. In further analysis, we show that these efects are more evident for smaller banks and banks operating in a single state. These fndings provide evidence that public corruption could facilitate information asymmetry in the lending market and, thus, could hinder local development by reducing bank credit.
2021
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11570/3169276
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