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Does corruption impact the demand for bank credit? A study of discouraged borrowers in Asian developing countries

Jean-Christophe Statnik and Thi-Le-Giang Vu

Finance, 2020, vol. 41, issue 3, 7-50

Abstract: Two dysfunctions can affect the credit market: credit rationing and discouragement. While the former has been studied in detail for more than 40 years, the latter has only been in the spotlight since 2003. In this paper, we contribute to the understanding of this ?demand-side failure? by investigating the role played by corruption. In particular, using data from the Enterprise Surveys conducted by the World Bank, we highlight, on the one hand, a significant negative overall link between corruption and ?discouraged borrowers? in developing countries, and on the other, the fact that this effect is non-linear and differs according to the level of economic development: in more (resp. less) developed countries, the higher the level of corruption, the more (resp. less) companies are discouraged from applying for loans. We also find that the burden of government regulation can explain this effect. To overcome this burden, firms see corruption as one way to reach their targets at lower costs.

Keywords: discouraged borrowers; discouragement; corruption; developing countries; burden of regulation (search for similar items in EconPapers)
Date: 2020
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