BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 11/2011:
The effect of foreign bank presence on firm entry and exit in transition economies
Olena Havrylchyk ()
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; (follow links to similar papers)
JEL-Codes: E51; G21; M13; (follow links to similar papers)
35 pages, June 21, 2011
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