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Entry decisions and adverse selection: an empirical analysis of a local credit markets

Giorgio Gobbi and Francesca Lotti

No 535, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: During the last decades there has been a widespread relaxation of legal entry barriers into the banking industry, with potential benefits for financial integration and competition. Obstacles to banks' geographical and business expansion have been removed and branching has been substantially liberalized. This paper analyzes the determinants of entry decisions into local credit markets using a unique data set before and after deregulation of the Italian banking industry. We estimate an entry model � la Poisson and find evidence that spreads between loan and deposit rates drive entry only for newly chartered banks, but does not affect the decision to open branches of banks operating in other markets. Branching by outside banks is instead positively correlated with business opportunities in the provision of financial services which do not require the acquisition of substantial proprietary information. Both these results are consistent with the hypothesis that in credit markets incumbents have an informational advantage over new entrants.

Keywords: Entry; deregulation; informational barriers; count data; overdispersion (search for similar items in EconPapers)
JEL-codes: C25 G21 L22 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-com, nep-ent, nep-fin, nep-geo, nep-ind, nep-tid and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Journal Article: Entry Decisions and Adverse Selection: An Empirical Analysis of Local Credit Markets (2004) Downloads
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