Corruption and bank efficiency: Expanding the ‘sand or grease the wheel hypothesis’ for the Gulf Cooperation Council

Mohammad Kabir Hassan, Rashedul Hasan, Mohammad Dulal Miah, Muhammad Ashfaq

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Abstract

We draw upon the broader theoretical framework of rent-seeking to empirically analyze the impact of corruption on the efficiency of the banking industry in the Gulf Cooperation Council. We have used various databases, including Bankscope, World Bank, and Transparency International, to gather Bank-specific and macro-economic data for 77 banks covering the period 2005–2014. We perform ordinary least square (OLS) and generalised methods of moments regression (GMM) using a balanced panel and find (1) Islamic banks as less efficient and stable as compared to conventional banks in the GCC region, (2) corruption has a negative (positive) impact on Islamic (conventional) banks' stability. Our findings provide support for the ‘sand the wheel’ hypothesis of corruption for Islamic banks. This finding supports the view that under the current weak governance structures and complex policy framework, corruption acts as an ‘escape hatch’ for conventional banks. Our empirical findings could pave the way for further policy reform for the banking sector in the GCC region.
Original languageEnglish
Article numbere2737
Number of pages17
JournalJournal of Public Affairs
Volume22
Issue numberS1
Early online date10 Aug 2021
DOIs
Publication statusPublished - 19 Dec 2022

Bibliographical note

This is the peer reviewed version of the following article: Hassan, MK, Hasan, R, Miah, MD & Ashfaq, M 2022, 'Corruption and bank efficiency: Expanding the ‘sand or grease the wheel hypothesis’ for the Gulf Cooperation Council', Journal of Public Affairs, vol. 22, no. S1, e2737. https://doi.org/10.1002/pa.2737, which has been published in final form at https://doi.org/10.1002/pa.2737.This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.

This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

Keywords

  • corruption
  • Efficiency
  • GCC Countries
  • Islamic banks
  • rent-seeking

ASJC Scopus subject areas

  • Political Science and International Relations
  • Public Administration

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