Corruption in Bank Lending: The Role of Culturally Endorsed Leadership Prototypes

Abstract

This paper examines the impact of three culturally endorsed leadership prototypes on bank lending corruption. We bring together studies that approach the corruption of bank lending officers from the perspective of a principal-agent problem and studies from the leadership literature, suggesting leadership as an alternative to contractual solutions to agency problems. We hypothesize, based on these views, that culturally endorsed leadership styles that improve (worsen) the leader-subordinate relationships have a negative (positive) effect on bank lending corruption. Using a sample of around 3,500 firms from 36 countries, we find that the prosocial leadership prototype and the nonautonomous leadership prototype do not matter, whereas the self-serving leadership prototype has a positive and statistically significant effect on bank lending corruption. These findings are robust to the inclusion of various control variables in the regressions, and alternative estimation approaches, including ones that account for endogeneity concerns. Furthermore, we find that the power of bank regulators and the age of the credit information sharing mechanism play a moderating role in the relationship between the self-serving leadership prototype and bank lending corruption.