Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5092384 | Journal of Comparative Economics | 2014 | 18 Pages |
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.
Related Topics
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Economics and Econometrics
Authors
Sophie Claeys, Christa Hainz,