Working Paper: CEPR ID: DP6958
Authors: Mariassunta Giannetti; Steven Ongena
Abstract: Using a novel dataset that allows us to trace the primary 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 bank-firm relationships implies. Even though foreign banks are more likely to engage large and foreign-owned firms, they do not terminate relationships with the clients of banks they acquire as often as domestic financial acquirers do. Most importantly, firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not. Since firms without bank relationships make lower use of financial loans, and invest less, our results suggest that by making relationships more stable and by indirectly enhancing access to the financial system, foreign banks may benefit all firms.
Keywords: competition; emerging markets; foreign bank lending; lending relationships
JEL Codes: G21; L11; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign banks (G21) | large and foreign-owned firms (F23) |
| foreign banks (G21) | stability of bank-firm relationships (G21) |
| foreign banks (G21) | overall credit availability (E51) |
| foreign bank relationships (F65) | access to financial loans (G21) |
| foreign banks (G21) | domestic bank lending policies (G21) |
| foreign banks (G21) | firm performance (L25) |
| foreign banks (G21) | financial leverage (G32) |
| foreign banks (G21) | investment (G31) |
| foreign banks (G21) | sales per employee (M51) |
| foreign banks (G21) | growth of sales (L25) |