The Impact of Corruption on SMEs’ Access to Finance : Evidence Using Firm-Level Survey Data from Developing Countries
The present paper estimates the impact of bureaucratic corruption on access to finance of small and medium-size enterprises in 114 developing countries. Corruption can hurt small and medium-size enterprises’ access to finance by lowering profits,...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/935941634651569360/The-Impact-of-Corruption-on-SMEs-Access-to-Finance-Evidence-Using-Firm-Level-Survey-Data-from-Developing-Countries http://hdl.handle.net/10986/36430 |
| Summary: | The present paper estimates the
impact of bureaucratic corruption on access to finance of
small and medium-size enterprises in 114 developing
countries. Corruption can hurt small and medium-size
enterprises’ access to finance by lowering profits,
increasing credit demand, increasing bankruptcy chances,
creating uncertainty about the firm’s future profit, and
exacerbating the asymmetric information problem between
borrowers and lenders. Consistent with this view, the
findings show a large adverse effect of higher corruption on
small and medium-size enterprises’ access to finance. An
increase in corruption from its smallest to highest value
increases the likelihood of small and medium-size
enterprises being financially constrained from 6.9 to 10.9
percentage points. The analysis uncovers several
heterogeneities in the corruption-finance relationship. For
instance, the adverse effect of corruption on access to
finance is much less in countries where financial
institutions protect the rights of borrowers and lenders are
stronger, laws provide for better credit information, and
credit bureaus exist. The paper argues that these
heterogeneities derive from the specific ways in which
corruption impacts access to finance. Thus, they help to
raise confidence against endogeneity concerns about the main
results. Other heterogeneities uncovered suggest that
corruption is more harmful to firms more that, absent
corruption, are known to enjoy better access to finance,
such as male versus female owned firms, relatively large
firms, and better performing firms. The results have
important policy implications for the growth of small and
medium-size enterprises in the developing world. |
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