'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)
Tilburg University - CentER, European Banking Center (EBC); Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP6958
Using a novel dataset that allows us to trace the primary 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 bank-firm relationships implies. Even though foreign banks are more likely to engage large and foreign-owned firms, they do not terminate relationships with the clients of banks they acquire as often as domestic financial acquirers do. Most importantly, firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not. Since firms without bank relationships make lower use of financial loans, and invest less, our results suggest that by making relationships more stable and by indirectly enhancing access to the financial system, foreign banks may benefit all firms.
Number of Pages in PDF File: 51
Keywords: competition, emerging markets, foreign bank lending, lending relationships
JEL Classification: G21, L11, L14working papers series
Date posted: December 2, 2008
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