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Financial integration and entrepreneurial activity - evidence from foreign bank entry in emerging markets

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Author Info
Mariassunta Giannetti () (Stockholm School of Economics, ECGI, and CEPR, Department of Finance and SITE, PO Box 6501, S 11 383 Stockholm, Sweden)
Steven Ongena () (CentER – Tilburg University and CEPR, Department of Finance, PO Box 90153, NL 5000 LE Tilburg,The Netherlands)

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Abstract

An extensive empirical literature has documented the positive growth effects of equity market liberalization. However, this line of research ignores the impact of financial integration on a category of firms crucial for economic development, i.e. the small entrepreneurial firms. This paper aims to fill this void. We employ a large panel containing almost 60,000 firm–year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing. Foreign lending stimulates growth in firm sales, assets, and leverage, but the effect is dampened for small firms. We also find that firms started during the transition period of 1989-1993 – arguably the most connected businesses – benefit least from foreign bank entry. This finding suggests that foreign banks can help mitigate connected lending problems and improve capital allocation.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 498.

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Length: 51 pages
Date of creation: Jun 2005
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Handle: RePEc:ecb:ecbwps:20050498

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Related research
Keywords: Foreign bank lending emerging markets competition lending relationships.

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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References listed on IDEAS
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.:
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Full references

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. Paul Wachtel & Rainer Haselmann, 2006. "Institutions and Bank Behavior," Working Papers 06-16, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  2. Claeys, Sophie & Hainz, Christa, 2007. "Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates," Working Paper Series 210, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  3. Laura Alfaro & Andrew Charlton, 2007. "International Financial Integration and Entrepreneurial Firm Activity," NBER Working Papers 13118, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Soledad Martinez Peria, Maria & Beck, Thorsten, 2008. "Foreign bank acquisitions and outreach : evidence from Mexico," Policy Research Working Paper Series 4467, The World Bank. [Downloadable!]
  5. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2007. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," CEPR Discussion Papers 6313, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Ricardo Correa, 2008. "Cross-border bank acquisitions: Is there a performance effect?," International Finance Discussion Papers 922, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Morrison, Alan & White, Lucy, 2005. "Level Playing Fields in International Financial Regulation," CEPR Discussion Papers 5247, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Cull, Robert & Martinez Peria, Maria Soledad, 2007. "Foreign bank participation and crises in developing countries," Policy Research Working Paper Series 4128, The World Bank. [Downloadable!]
  9. Laura Alfaro & Andrew Charlton, 2006. "International Financial Integration and Entrepreneurship," CEP Discussion Papers dp0755, Centre for Economic Performance, LSE. [Downloadable!]
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