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Financial Liberalization, Competition, and Bank Loan Quality

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Author Info

  • Chen, Xiaofen

    ()
    (Truman State University)

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    Abstract

    The paper studies the relationship between financial liberalization, characterized by removing entry restrictions, and bank loan quality. It shows that if a banking market is liberalized, the opportunity cost of screening loan applicants is driven lower by competition. Thus, a bank facing an entry threat is more likely to invest in screening instead of relying on collateral requirements. Removing entry restrictions may improve loan quality stability and reduce correlation between bank performance and asset price fluctuations.

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    Bibliographic Info

    Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

    Volume (Year): 20 (2005)
    Issue (Month): ()
    Pages: 109-122

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    Handle: RePEc:ris:integr:0308

    Contact details of provider:
    Web page: http://econo.sejong.ac.kr/
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    Related research

    Keywords: financial liberalization; banking competition; screening; loan quality;

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    Cited by:
    1. Chen, Xiaofen, 2007. "Banking deregulation and credit risk: Evidence from the EU," Journal of Financial Stability, Elsevier, vol. 2(4), pages 356-390, March.
    2. Agostino, Mariarosaria & Gagliardi, Francesca & Trivieri, Francesco, 2010. "Credit market structure and bank screening: An indirect test on Italian data," Review of Financial Economics, Elsevier, vol. 19(4), pages 151-160, October.

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