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Asymmetric Information and the Mode of Entry In Foreign Credit Markets

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  • Eric Van Tassel

    () (Department of Economics, College of Business, Florida Atlantic University)

  • Sharmila Vishwasrao

    () (Department of Economics, College of Business, Florida Atlantic University)

Abstract

In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.

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File URL: http://home.fau.edu/svishwas/web/Mode%20of%20bank%20entry.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 06002.

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Length: 35 pages
Date of creation: Aug 2006
Date of revision:
Publication status: forthcoming in Journal of Banking and Finance
Handle: RePEc:fal:wpaper:06002

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Keywords: Foreign entry; bank competition; information;

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References

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Citations

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Cited by:
  1. Lehner, Maria & Schnitzer, Monika, 2006. "Entry of Foreign Banks and their Impact on Host Countries," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 152, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Giannetti, Caterina & Jentzsch, Nicola & Spagnolo, Giancarlo, 2010. "Information Sharing and Cross-Border Entry in European Banking," ECRI Papers 2990, Centre for European Policy Studies.
  3. Lehner, Maria, 2009. "Entry mode choice of multinational banks," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1781-1792, October.
  4. Wu, Ji & Jeon, Bang Nam & Luca, Alina C., 2010. "Does Distance Affect the Performance of Foreign Banks? Evidence from Multinational Banking in Developing Countries," MPRA Paper 37083, University Library of Munich, Germany, revised 01 Feb 2012.
  5. Lehner, Maria, 2008. "Entry Mode Choice of Multinational Banks," Discussion Papers in Economics 8222, University of Munich, Department of Economics.
  6. Lamin Leigh & Richard Podpiera, 2006. "The Rise of Foreign Investment in China's Banks: Taking Stock," IMF Working Papers 06/292, International Monetary Fund.
  7. De Haas, Ralph & Ferreira, Daniel & Taci, Anita, 2010. "What determines the composition of banks' loan portfolios? Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 388-398, February.

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