'Lending by Example': Direct and Indirect Effects of Foreign Banks in Emerging Markets
Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance
University of Zurich - Department of Banking and Finance; Swiss Finance Institute
October 27, 2010
AFA 2009 San Francisco Meetings Paper
Second Singapore International Conference on Finance 2008
ECGI - Finance Working Paper No. 221/2008
Using a novel dataset that allows us to trace the bank relationships of a sample of mostly unlisted firms, we explore which borrowers are able to benefit from foreign bank presence in emerging markets. Our results suggest that the limits to financial integration are less tight than the static picture of firm-bank relationships implies. Even though foreign banks are more likely to engage large and foreign-owned firms, after an acquisition, a bank is 20 percent less likely to terminate a relationship with a firm if the acquirer is foreign rather than domestic. Most importantly, within a credit market, firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not, while foreign banks benefit all firms by indirectly enhancing credit access.
Number of Pages in PDF File: 40
Keywords: foreign bank lending, emerging markets, competition, lending relationships
JEL Classification: F3, G21, L11, L14
Date posted: March 6, 2008 ; Last revised: October 27, 2010
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