The Effect Of Credit Corruption On Business And Financial Resource Allocation

Because of the special properties of financial sector, workers in financial sector can easily reach huge funds, up to the president of the bank, down to the general staff of the bank. Literature review found that:In the study of "pure" corruption and financial corruption, the classification of corruption has not been applied, and the resource allocation effect of corruption is in dispute. Existing literatures on financial corruption assume that corruption is the choice of financial institutions. Financial corruption will inevitably lead to increased probability of bankruptcy, and decline in the proportion of entrepreneurs and reduce the efficiency of the allocation of financial resources.In this paper, we challenge the view of current literature, taking credit corruption as an example. Credit corruption will be classified as corruption without theft and corruption with theft. Then we will examine the impact of credit corruption without and with theft on enterprise bankruptcy probability and proportion of entrepreneurs, and the impact on financial resource allocation. Analysis draws on the idea of Blackburn & Sarmah (2006). But instead of assuming credit corruption as the action of financial institutions, we take it as a deal between a bank loan applicant and the worker of bank, cheating on the financial institutions, and corrupted revenue is obtained by private worker. The following main conclusions are as follows:(1) On the one hand, credit corruption increases the enterprise's financing needs, leading to increase in the scarcity of funds; On the other hand, corruption distorts the investment conditions.(2) Credit corruption without theft raises the bankrupt probability and reduces the proportion of innovative entrepreneurs in society, and with the increase in the amount of bribery, it further reduces the proportion of the entrepreneur population; Credit corruption with theft has a uncertain effect on the probability of bankruptcy and proportion of the population of entrepreneurs.(3)Whether in credit market under corruption without or with theft, high-quality companies are forced to choose a higher bribe to obtain loans, thus ensuring the rational allocation of financial resources. But in the credit market without corruption, because of insufficient incentive, bank lending officers'random lending behavior may produce inefficient use of loans. If only from the perspective of economic efficiency, a certain degree of financial corruption will contribute to the rational allocation of financial resources and it is an improvement under the situation of a serious monopoly financial market.