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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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Author Info
Claeys, Sophie () (Research Department, Central Bank of Sweden)
Hainz, Christa () (Department of Economics, University of Munich)

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Abstract

Policy makers often decide to liberalize foreign bank entry but put limitations on the mode of entry. We study how different entry modes affect the lending rate set by foreign and domestic banks. Our model captures two essential features of banking competition in emerging markets: Domestic banks possess private information about their incumbent clients and foreign banks have better screening skills. Our model predicts that competition is stronger if foreign entry occurs through a greenfield investment and domestic banks' interest rates are thus lower. We find empirical support for this differential competition effect for a sample of banks from ten Eastern European countries for the period 1995-2003.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 210.

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Length: 70 pages
Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:hhs:rbnkwp:0210

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Related research
Keywords: Banking; Foreign Entry; Mode of Entry; Interest Rate; Asymmetric Information;

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs

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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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    Other versions:
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  6. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(1), pages 205-36.
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  21. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe: Does the entry mode matter?," BOFIT Discussion Papers 5/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  29. Haselmann, Rainer & Pistor, Katharina & Vig, Vikrant, 2006. "How Law Affects Lending," MPRA Paper 157, University Library of Munich, Germany. [Downloadable!]
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  31. Ross Levine, 2003. "Denying Foreign Bank Entry: Implications For Bank Interest Margins," Working Papers Central Bank of Chile 222, Central Bank of Chile. [Downloadable!]
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. Lehner, Maria & Schnitzer, Monika, 2006. "Entry of Foreign Banks and their Impact on Host Countries," Discussion Papers in Economics 1208, University of Munich, Department of Economics. [Downloadable!]
    Other versions:
  2. Steven Globerman & Daniel Shapiro, 2009. "Economic and strategic considerations surrounding Chinese FDI in the United States," Asia Pacific Journal of Management, Springer, vol. 26(1), pages 163-183, March. [Downloadable!] (restricted)
  3. Claudia M. Buch & Gayle L. DeLong, 2008. "Banking Globalization: International Consolidation and Mergers in Banking," IAW Discussion Papers 38, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
  4. Lehner, Maria, 2008. "Entry Mode Choice of Multinational Banks," Discussion Papers in Economics 8222, University of Munich, Department of Economics. [Downloadable!]
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