Working Paper: NBER ID: w11498
Authors: Thorsten Beck; Asli Demirgüç-Kunt; Ross Levine
Abstract: Which commercial bank supervisory policies ease - or intensify - the degree to which bank corruption is an obstacle to firms raising external finance? Based on new data from more than 2,500 firms across 37 countries, this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms' financing obstacles. We find that the traditional approach to bank supervision, which involves empowering official supervisory agencies to directly monitor, discipline, and influence banks, does not improve the integrity of bank lending. Rather, we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance. In extensions, we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions.
Keywords: bank supervision; corruption; external finance; firm financing obstacles
JEL Codes: G3; G28; L51; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Traditional supervisory power (M54) | degree of corruption in bank lending (G21) |
| Higher supervisory power (E58) | increased corruption in bank lending (G21) |
| Regulations promoting private monitoring (G18) | importance of bank corruption as an obstacle to raising external finance (F65) |
| Private monitoring (Y50) | lending integrity (G21) |
| Stronger supervisory power (G28) | increased corruption in lending (F65) |