Journal of Applied Finance & Banking

Study on the Collusive Corruption in Supervision of Bank Credit

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• Abstract

  Commercial banks are typical hierarchical organizations, in which the multipleprincipal- agent problem exists and induces serious internal collusive corruption. This article analyzes the collusive corruption between credit supervisors and credit managers in bank credit activities, through three possible situations of supervision. The results indicate that internal supervision is necessary even though supervisors and managers could collude. Meanwhile, it is inefficient for banking only depending on the costly external supervisor. Finally, the implications of findings are discussed.