Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe

35 Pages Posted: 19 Feb 2009

See all articles by Emilia Magdalena Jurzyk

Emilia Magdalena Jurzyk

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Olena Havrylchyk

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; Université Paris Ouest - Nanterre, La Défense - EconomiX

Date Written: May 2008

Abstract

Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.

Keywords: foreign banks, foreign acquisition, propensity score matching

JEL Classification: G15, G21, G34, F36

Suggested Citation

Jurzyk, Emilia Magdalena and Havrylchyk, Olena, Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe (May 2008). Available at SSRN: https://ssrn.com/abstract=1338128 or http://dx.doi.org/10.2139/ssrn.1338128

Emilia Magdalena Jurzyk

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Olena Havrylchyk (Contact Author)

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris ( email )

113 rue de Grenelle
Paris, F-75007
France

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

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