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Foreign bank entry and performance of domestic SMEs: evidence from Korea

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  • Junyong Lee

    (Kookmin University)

  • Frederick Dongchuhl Oh

    (Seoul National University)

Abstract

We examine whether foreign bank entry enhances the performance of small and medium-sized enterprises (SMEs) in Korea. Using panel data on Korean firms from 1991 to 2019, we first confirm that foreign banks positively influence the amount of bank loans received by Korean SMEs, suggesting that their entry contributes to improving SMEs’ credit access. Additionally, the positive impact of foreign bank entry is more pronounced for SMEs characterized by high information asymmetry and strong growth potential. Further, improved credit access through foreign banks is positively associated with the long-term performance of SMEs. Overall, our study highlights the importance of foreign banks for improving both credit access and the performance of domestic SMEs in a transition economy.

Suggested Citation

  • Junyong Lee & Frederick Dongchuhl Oh, 2025. "Foreign bank entry and performance of domestic SMEs: evidence from Korea," Annals of Finance, Springer, vol. 21(2), pages 131-162, June.
    • Handle: RePEc:kap:annfin:v:21:y:2025:i:2:d:10.1007_s10436-025-00460-1
    DOI: 10.1007/s10436-025-00460-1
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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