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Foreign bank entry, bank efficiency and market power in Central and Eastern European Countries

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  • Tigran Poghosyan
  • Arsen Poghosyan

Abstract

This article analyses the implications of the recently observed sharp expansion of foreign banks in the Central and Eastern European Countries (CEECs) as measured by equity ownership. We show that the mode of foreign entry has a pivotal impact on the post-entry performance of banks in CEECs. Foreign greenfield banks are characterized by superior cost efficiency, compared with domestic and foreign-acquired banks. The efficiency of foreign-acquired banks deteriorates in the initial year of acquisition, but improves thereafter. Banks acquired by foreigners have less market power relative to domestic and foreign greenfield banks. Overall, the CEEC banking sectors have benefited from the increased foreign bank participation, both in terms of higher efficiency and more competition. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 The European Bank for Reconstruction and Development.

Suggested Citation

  • Tigran Poghosyan & Arsen Poghosyan, 2010. "Foreign bank entry, bank efficiency and market power in Central and Eastern European Countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(3), pages 571-598, July.
  • Handle: RePEc:bla:etrans:v:18:y:2010:i:3:p:571-598
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    References listed on IDEAS

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    Cited by:

    1. Mamatzakis, E & kalyvas, a, 2013. "Regulations, Economic Freedom and Bank Performance: Evidence from the EU-10 Economies," MPRA Paper 51878, University Library of Munich, Germany.
    2. Sokic, Alexandre, 2015. "Cost efficiency of the banking industry and unilateral euroisation: A stochastic frontier approach in Serbia and Montenegro," Economic Systems, Elsevier, pages 541-551.
    3. Psillaki, Maria & Mamatzakis, Emmanuel, 2017. "What drives bank performance in transitions economies? The impact of reforms and regulations," Research in International Business and Finance, Elsevier, pages 578-594.
    4. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
    5. Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2009. "A Soft Edge Target Zone Model: Theory And Application To Hong Kong," Dundee Discussion Papers in Economics 228, Economic Studies, University of Dundee.
    6. Iwanicz-Drozdowska, Małgorzata & Witkowski, Bartosz, 2016. "Credit growth in Central, Eastern, and South-Eastern Europe: The case of foreign bank subsidiaries," International Review of Financial Analysis, Elsevier, pages 146-158.
    7. George Anayiotos & Hovhannes Toroyan & Athanasios Vamvakidis, 2010. "The efficiency of emerging Europe’s banking sector before and after the recent economic crisis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 247-267.
    8. repec:eee:ecosys:v:41:y:2017:i:1:p:122-138 is not listed on IDEAS
    9. Tigran Poghosyan & Subal Kumbhakar, 2010. "Heterogeneity of technological regimes and banking efficiency in former socialist economies," Journal of Productivity Analysis, Springer, pages 19-31.
    10. Poghosyan, Tigran, 2010. "Re-examining the impact of foreign bank participation on interest margins in emerging markets," Emerging Markets Review, Elsevier, pages 390-403.
    11. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin & Waisman, Maya, 2014. "Bank valuation in new EU member countries," Economic Systems, Elsevier, pages 55-72.
    12. repec:onb:oenbfi:y:2017:i:q3/17:b:4 is not listed on IDEAS
    13. Desislava Dikova & Keith Brouthers, 2016. "International Establishment Mode Choice: Past, Present and Future," Management International Review, Springer, vol. 56(4), pages 489-530, August.
    14. repec:ebd:wpaper:162 is not listed on IDEAS
    15. Fungáčová, Zuzana & Poghosyan, Tigran, 2011. "Determinants of bank interest margins in Russia: Does bank ownership matter?," Economic Systems, Elsevier, pages 481-495.

    More about this item

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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