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Entry decisions and adverse selection: an empirical analysis of a local credit markets

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Author Info
Giorgio Gobbi () (Economics Research Department, Bank of Italy)
Francesca Lotti () (Economics Research Department, Bank of Italy)

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Abstract

During 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 à 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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Publisher Info
Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 535.

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Date of creation: Dec 2004
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Handle: RePEc:bdi:wptemi:td_535_04

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Related research
Keywords: Entry; deregulation; informational barriers; count data; overdispersion;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository 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

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References listed on IDEAS
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  21. Focarelli, Dario & Pozzolo, Alberto Franco, 2003. "Where Do Banks Expand Abroad? An Empirical Analysis," Economics & Statistics Discussion Papers esdp03009, University of Molise, Dept. SEGeS. [Downloadable!]
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  22. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  23. Enrico Santarelli, 2000. "The duration of new firms in banking: an application of Cox regression analysis," Empirical Economics, Springer, vol. 25(2), pages 315-325. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Valentini, 2006. "Ristrutturazione del sistema creditizio, piccole e medie imprese e crescita economica nel mezzogiorno," Departmental Working Papers of Economics - University 'Roma Tre' 0065, Department of Economics - University Roma Tre. [Downloadable!]
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