Entry decisions and adverse selection: an empirical analysis of a local credit markets
AbstractDuring the last decades there has been a widespread relaxation of legal entry barriers into the banking industry, with potential benefits for financial integration and competition. Obstacles to banks' geographical and business expansion have been removed and branching has been substantially liberalized. This paper analyzes the determinants of entry decisions into local credit markets using a unique data set before and after deregulation of the Italian banking industry. We estimate an entry model Ã la Poisson and find evidence that spreads between loan and deposit rates drive entry only for newly chartered banks, but does not affect the decision to open branches of banks operating in other markets. Branching by outside banks is instead positively correlated with business opportunities in the provision of financial services which do not require the acquisition of substantial proprietary information. Both these results are consistent with the hypothesis that in credit markets incumbents have an informational advantage over new entrants.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 535.
Date of creation: Dec 2004
Date of revision:
Entry; deregulation; informational barriers; count data; overdispersion;
Other versions of this item:
- Giorgio Gobbi & Francesca Lotti, 2004. "Entry Decisions and Adverse Selection: An Empirical Analysis of Local Credit Markets," Journal of Financial Services Research, Springer, vol. 26(3), pages 225-244, December.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-07-03 (All new papers)
- NEP-COM-2005-07-03 (Industrial Competition)
- NEP-ENT-2005-07-03 (Entrepreneurship)
- NEP-FIN-2005-07-03 (Finance)
- NEP-GEO-2005-07-03 (Economic Geography)
- NEP-IND-2005-07-03 (Industrial Organization)
- NEP-TID-2005-07-03 (Technology & Industrial Dynamics)
- NEP-URE-2005-07-03 (Urban & Real Estate Economics)
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