Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates

Sophie Angelique Claeys and Christa Hainz

No 210, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

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.

Keywords: Banking; Foreign Entry; Mode of Entry; Interest Rate; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: D40 G21 L31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com and nep-tra
Date: Written 2007-06-01
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Related works:
Working Paper: Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates (2006)
Working Paper: Acquisition versus greenfield - the impact of the mode of foreign bank entry on information and bank lending rates (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:rbnkwp:0210

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