Abstract
Policy makers who decide to liberalize foreign bank entry frequently put limitations on the mode of entry. We study how different entry modes affect the lending rates of foreign and domestic banks. In our model, the mode of entry determines whether a foreign bank inherits a customer base. This, in turn, affects how information is distributed between foreign and domestic banks. We show that this ...
Abstract
Policy makers who decide to liberalize foreign bank entry frequently put limitations on the mode of entry. We study how different entry modes affect the lending rates of foreign and domestic banks. In our model, the mode of entry determines whether a foreign bank inherits a customer base. This, in turn, affects how information is distributed between foreign and domestic banks. We show that this distribution of information about incumbent customers leads to stronger competition if foreign entry occurs through a greenfield investment. As a result, domestic bank lending rates are lower after greenfield entry. We find empirical support for this prediction for a sample of banks from 10 Eastern European countries for the period 1995-2003. Journal of Comparative Economics 42 (1) (2014) 160-177. Ghent University, W. Wilsonplein 5D, 9000 Ghent, Belgium; Sveriges Riksbank, Research Department, 103 37, Stockholm, Sweden; Ifo Institute and CESifo, Poschingerstr. 5, 81679 Munchen, Germany; Institute for East and Southeast European Studies, Landshuter Str. 4, 93047 Regensburg, Germany. (C) 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.
Altmetric