E-Finance, Entry Deterrence, and Optimal Loan Rate of a Potential Entrant: An Option-Based Valuation

Chuen-Ping Chang ()
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Chuen-Ping Chang: Graduate Institute of Commerce, Kaohsiung University of Applied Sciences, 415 Chien Kung Road, Kaohsiung 807, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2010, vol. 13, issue 02, 287-307

Abstract: This paper examines the relationships among electronic finance (e-finance), entry deterrence, and the potential entrant's optimal loan interest rate in a two-stage model where the sunk costs are the entry barriers. The two key findings are: (i) in the loan rate determination stage, the potential entrant's loan rate is negatively related to its involvement level in e-finance with its own strategic substitutes, to the incumbent's involvement level in e-finance in realization of a more risky state of the world, and to the degree of contestability in realization of a less risky state and (ii) in the technology choice stage, the potential entrant's involvement level in e-finance is positively related to the incumbent's own strategic complements, and to the degree of contestability in realization of a more risky state. The results suggest that a potential entrant's banking investment depends on strong strategic management practices and the realization of risky states of the world.

Keywords: e-finance; entry deterrence; loan rate; capital regulation (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091510001950

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