The Effect of Foreign Bank Presence on Firm Entry and Exit in Transition Economies

35 Pages Posted: 22 Jun 2011

See all articles by Olena Havrylchyk

Olena Havrylchyk

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

Date Written: June 3, 2011

Abstract

This study investigates the impact of foreign bank penetration on firm entry in Central and Eastern Europe. Acquisition of domestic banks by foreign investors has lowered rates of firm creation, decreased the average size of entrants, and increased firm exit in industries with greater informational opacity, while entry of greenfield foreign banks appears to have spurred firm creation and exit. We modify the view in earlier studies that informational opacity equates with firm size, defining opacity in terms of technological characteristics for a given industry. We find the economic significance of foreign bank entry is larger for opaque industries than industries with large shares of small firms. The study provides evidence of increased credit constraints for start-ups in Central and Eastern Europe, which is consistent with the theoretical proposition that the presence of foreign banks exacerbates informational asymmetries.

Keywords: entrepreneurship, foreign bank entry, asymmetric information, credit constraints

JEL Classification: E51, G21, M13

Suggested Citation

Havrylchyk, Olena, The Effect of Foreign Bank Presence on Firm Entry and Exit in Transition Economies (June 3, 2011). BOFIT Discussion Paper No. 11/2011. Available at SSRN: https://ssrn.com/abstract=1868788 or http://dx.doi.org/10.2139/ssrn.1868788

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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