Financial Integration and Entrepreneurial Activity: Evidence from Foreign Bank Entry in Emerging Markets

Steven Ongena and Mariassunta Giannetti

No 5151, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: An extensive empirical literature has documented the positive growth effects of equity market liberalization. However, this line of research ignores the impact of financial integration on a category of firms crucial for economic development, i.e. the small entrepreneurial firms. This paper aims to fill this void. We employ a large panel containing almost 60,000 firm?year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing. Foreign lending stimulates growth in firm sales, assets, and leverage, but the effect is dampened for small firms. We also find that the most connected businesses benefit least from foreign bank entry. This finding suggests that foreign banks can help mitigate connected lending problems and improve capital allocation.

Keywords: Foreign bank lending; Emerging markets; Competition; Lending relationships (search for similar items in EconPapers)
JEL-codes: G21 L11 L14 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ent, nep-fin, nep-fmk and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Working Paper: Financial integration and entrepreneurial activity: evidence from foreign bank entry in emerging markets (2005)
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