'Lending by Example': Direct and Indirect Effects of Foreign Banks in Emerging Markets

40 Pages Posted: 6 Mar 2008 Last revised: 27 Oct 2010

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Multiple version iconThere are 3 versions of this paper

Date Written: October 27, 2010

Abstract

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.

Keywords: foreign bank lending, emerging markets, competition, lending relationships

JEL Classification: F3, G21, L11, L14

Suggested Citation

Giannetti, Mariassunta and Ongena, Steven, 'Lending by Example': Direct and Indirect Effects of Foreign Banks in Emerging Markets (October 27, 2010). AFA 2009 San Francisco Meetings Paper; Second Singapore International Conference on Finance 2008; ECGI - Finance Working Paper No. 221/2008. Available at SSRN: https://ssrn.com/abstract=1085310 or http://dx.doi.org/10.2139/ssrn.1085310

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Swedish House of Finance ( email )

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Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

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Swiss Finance Institute ( email )

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