Small Firms, Corruption, and Demand for Credit. Evidence from the Euro Area

Abstract

In this paper, we aim to assess how the quality of the institutional environment -identified according to the level of corruption perceived in a country -may affect the access to credit for micro, small, and medium-sized enterprises (MSMEs). Based on a sample of 68,115 observations -drawn from the ECB-SAFE survey -related to MSMEs chartered in 11 euro area countries, we investigate whether the level of corruption affects their demand for bank loans during the period 2009-2014.Overall, we find that the degree of corruption seems to play a role in the applications for bank loans when small firms are under investigation. Interestingly, results highlight that small businesses chartered in highly corrupt countries face a greater probability of self-restraint regarding their loan applications (about 7.4%) than small firms located in low-corruption economies (around 6%). The results are robust to various model specifications and econometric methodologies. Our findings suggest that anti-corruption policies and measures enhancing transparency in the economy may be crucial in reducing the negative spillovers generated by a low-quality institutional environment on the access to credit by small firms.

Female corporate leadership, institutions and financing constraints around the world

“…Effective institutions facilitate female-owned firms' access to external finance by allowing them to legally acquire collateral and overcome other institutional obstacles (Demirguc-Kunt et al, 2008;Mertzanis, 2019). Corruption plays a key role (Galli et al, 2017). We account for them by adding controls for the extent of government effectiveness (GOVEFF) and the extent of control of corruption (CONTCOR) in the country.…”

Effets de la corruption sur l'activité bancaire en Afrique subsaharienne (AfSS)

“…La corruption désincite également la demande de crédit bancaire. Dans cette optique, Galli, Mascia et Rossi (2017) rapportent dans une étude portant sur 11 pays d ' Europe que les micros, petites et moyennes entreprises renoncent d ' autant plus à demander des crédits bancaires par crainte de rejet que le niveau de corruption est élevé.…”

“…La corruption contribue à un renchérissement du coût du crédit, amplifie les problèmes d ' asymétrie d ' information et obstrue l ' application de la loi (Weill, 2011a(Weill, , 2011bAli et al, 2020). Dès lors, elle désincite les entreprises à demander du crédit et les banques à octroyer le crédit (Galli et al, 2017 ;Liu et al, 2020). Au plan empirique, ce résultat conforte celui obtenu dans des études qui ont montré l ' effet négatif de la corruption sur le crédit bancaire (Detragiache et al, 2008 ;Weill, 2011aWeill, , 2011bBermpei et al, 2020 ;Liu et al, 2020).…”

Does Corruption Influence the Self-Restraint Attitude of Women-led SMEs towards Bank Lending?

“…In a highly corrupt environment, corruption damages especially the small and medium firms because of their limited financial resources, lower bargaining power, and more informal structure. Those features, indeed, make it very difficult for them to resist to the payment of bribes, whose burden per output is greater than for large firms (Svensson, 2003;Campos et al, 2010;Gbetnkom, 2012;Seker and Yang, 2012;Van Vu et al, 2016;Galli et al, 2017b).…”

“…Notably, evidence shows that the efficiency of institutions, the enforcement of legal rightsnamely, creditor rights protection and judicial enforcement (La Porta et al, 1997;Qian and Strahan, 2007;Djankov et al, 2008;Moro et al, 2016;Galli et al, 2017a)and the competitiveness of the banking market (Cavalluzzo et al, 2002) affect the behaviour of SMEs in regards to their propensity to apply for loans. However, little research has been done, so far, to investigate the effects that corruption may exert on the inclination of firms to access bank credit (see Galli et al, 2017b).…”