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N° 2010-10 |
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| June 2010 |
Foreign Bank Presence and its Effect on Firm Entry
and Exit in Transition Economies |
| Olena Havrylchyk |
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| This study investigates the impact of foreign bank penetration in Central and Eastern Europe on firm
entry. We demonstrate that the acquisition of domestic banks by foreign investors has led to reduced
firm creation, smaller average size of entrants and increased firm exit in opaque industries compared to
transparent ones. At the same time, the entry of greenfield foreign banks spurred firm creation and exit.
Unlike previous studies, which use interchangeably the notions of opacity and size, we define opacity in
terms of technological process and show that economic significance of foreign bank entry is larger for
opaque industries than for industries with large shares of small firms. Our findings can be interpreted
as evidence of increased credit constraints and are consistent with theories that argue that foreign bank
presence exacerbates informational asymmetries. |
Non-technical summary  |
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Résumé
non-technique
en français |
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| Full text |
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| Entrepreneurship; foreign bank entry; asymmetric information; credit constraints |
Keywords |
| E51; G21; M13 |
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