Credit bureaus and financial constraints do corruption matter?

Abstract

ABSTRACT This study aims to assess whether or not the presence of credit bureaus is associated with more or fewer financing constraints while considering the interfering effect of corruption in a sample of 18 countries in Eastern Europe and the Middle East and North Africa (MENA) region during the period 2011–2014. We consider various financial constraint measures and corruption indices, and assess the stability of the relationship for different levels of economic development and corruption. The estimation outcomes suggest that countries with higher levels of corruption might produce less transparent and falsified information that would make access to sources of financing more difficult for firms. Our findings suggest that curbing corruption creates more efficient credit bureaus that, in turn, decrease financial constraints for firms. The subsample estimations confirm these findings and show that the higher and longer-term corruption in MENA countries than in Eastern European countries make credit bureaus’ less effective, imposing more financial constraints. Our findings remain robust with different corruption indices and with the addition of new control variables such as firms’ sales and size, government and exporting firms, and per-capita GDP, inflation, trade, population and human capital.