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Acquisition versus greenfield: the impact of the mode of foreign bank entry on information and bank lending rates

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  • Claeys, Sophie
  • Hainz, Christa

Abstract

Policy makers often decide to liberalize foreign bank entry but at the same time restrict the mode of entry. We study how different entry modes affect the interest rate for loans in a model in which domestic banks possess private information about their incumbent clients but foreign banks have better screening skills. Our model predicts that competition is stronger if market entry occurs through a greenfield investment and therefore domestic banks' interest rates are lower. We find empirical support for our results for a sample of banks from 10 transition countries of Eastern Europe for the period 1995-2003. JEL Classification: G21, D4, L31

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0653.

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Date of creation: Jul 2006
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Handle: RePEc:ecb:ecbwps:20060653

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Keywords: Asymmetric information; banking; Foreign Entry; Interest Rate; Mode of Entry;

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