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Asymmetric information and the mode of entry in foreign credit markets

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  • Van Tassel, Eric
  • Vishwasrao, Sharmila

Abstract

In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 31 (2007)
Issue (Month): 12 (December)
Pages: 3742-3760

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Handle: RePEc:eee:jbfina:v:31:y:2007:i:12:p:3742-3760

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Citations

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Cited by:
  1. Lehner, Maria, 2008. "Entry Mode Choice of Multinational Banks," Discussion Papers in Economics 8222, University of Munich, Department of Economics.
  2. Giannetti, Caterina & Jentzsch, Nicola & Spagnolo, Giancarlo, 2010. "Information Sharing and Cross-Border Entry in European Banking," ECRI Papers 2990, Centre for European Policy Studies.
  3. Molyneux, Philip & Nguyen, Linh H. & Xie, Ru, 2013. "Foreign bank entry in South East Asia," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 26-35.
  4. Wu, Ji & Jeon, Bang Nam & Luca, Alina C., 2010. "Does Distance Affect the Performance of Foreign Banks? Evidence from Multinational Banking in Developing Countries," MPRA Paper 37083, University Library of Munich, Germany, revised 01 Feb 2012.
  5. Li, Qiang & Zeng, Yong & Liu, Bin, 2014. "Asymmetric information, foreign entry and multi-period credit competition in banking industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 216-229.
  6. Lehner, Maria & Schnitzer, Monika, 2006. "Entry of Foreign Banks and their Impact on Host Countries," CEPR Discussion Papers 5954, C.E.P.R. Discussion Papers.
  7. De Haas, Ralph & Ferreira, Daniel & Taci, Anita, 2010. "What determines the composition of banks' loan portfolios? Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 388-398, February.
  8. Lamin Leigh & Richard Podpiera, 2006. "The Rise of Foreign Investment in China's Banks," IMF Working Papers 06/292, International Monetary Fund.
  9. Lehner, Maria, 2009. "Entry mode choice of multinational banks," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1781-1792, October.
  10. Pennathur, Anita & Vishwasrao, Sharmila, 2014. "The financial crisis and bank–client relationships: Foreign ownership, transparency, and portfolio selection," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 232-246.
  11. Claeys, Sophie & Hainz, Christa, 2014. "Modes of foreign bank entry and effects on lending rates: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 160-177.

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