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Foreign bank entry, institutional development and credit access: firm-level evidence from 22 transition countries

  • Clara Rueda Maurer
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    In this paper I examine how the protection of creditors' rights influence the way in which foreign bank entry affects the access to credit of firms. Using a sample of more than 6000 firms in 22 transition countries I find that as bankruptcy proceedings become more inefficient foreign bank entry is more likely to crowd-out small and opaque firms. Conversely, as the protection of creditors' rights improve, the positive association between foreign banks and firms' credit constraints diminishes. These results are robust to controls for endogeneity of foreign banks. The interaction of foreign banks and the protection of creditors rights would explain the disparity of results obtained by previous studies: In countries with an adequate protection of creditor rights foreign bank entry may benefit all firms; By contrast, in countries with weak protection of creditor rights foreign bank entry is likely to result in a credit crunch.

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    File URL: http://www.snb.ch/n/mmr/reference/working_paper_2008_04/source/working_paper_2008_04.n.pdf
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    Paper provided by Swiss National Bank in its series Working Papers with number 2008-04.

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    Length: 39 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:snb:snbwpa:2008-04
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