Religiosity and Corruption in Bank Lending

This paper explores the effect of country-level religiosity on corruption in bank lending at the firm level. Using data from the World Business Environment Survey, we find strong and robust evidence that firms in more religious countries perceive a higher level of corruption in bank lending than firms in less religious countries. The economic significance of this effect is comparable to that of other well-known determinants of lending corruption. We further find that the banking market structure affects the relation between religiosity and lending corruption. Our findings are robust to alternative measures of religiosity and lending corruption. Finally, we address endogeneity concerns by using natural disaster exposure as an instrument for religiosity. Our study contributes to a more balanced and comprehensive understanding of the role of religion in finance.