Corruption, Trust, and Firms’ Access to Finance: Evidence from Brazil

The research project focuses on the potential role of corruption and local levels of trust in hindering entrepreneurial growth and innovation activities in Brazil. We will use a variety of confidential data sources, and we plan to add novel measures of corruption perceptions of entrepreneurs and local creditors, in order to shed light on a topic that is of key importance in the context of developing countries. Indeed, corruption is a crucial friction to growth for firms in poorer economies, but empirical evidence on it remains limited. The unique features of a recent Brazilian anti-corruption program will allow us to identify the causal impact of corruption on firms’ access to finance and the subsequent effects on the local economy. The SEED PhD I-Award will be mainly used to: a) travel to Brazil to access confidential lending and firm-level data, b) analyze thousands of municipal audit reports to create novel measures of corruption of the local government, c) conduct a survey on Brazilian entrepreneurs and bank managers, which will generate a unique dataset of corruption perceptions at the local level.