Financial Integration and Firm Performance: Evidence from Foreign Bank Entry in Emerging Markets

Financial Integration and Firm Performance: Evidence from Foreign Bank Entry in Emerging Markets

Mariassunta Giannetti, Steven Ongena

Series number :

Serial Number: 
091/2005

Date posted :

July 01 2005

Last revised :

SSRN Share

Keywords

  • Foreign bank lending • 
  • Emerging markets • 
  • competition • 
  • lending relationships

While the positive growth effects of financial integration are extensively documented, little is known of its impact on small and young firms. This paper aims to fill this void relying on a panel of 60,000 firm-year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing.

Foreign lending stimulates growth in firm sales, assets, and use of financial debt even though the effect is dampened for small firms. More strikingly, young firms benefit most from foreign bank presence, while businesses connected to domestic banks or to the government suffer. Overall, our findings suggest that foreign banks can help to mitigate connected-lending problems and to improve capital allocation.

Published in

Published in: 
Publication Title: 
Review of Finance, Volume
Description: 
Volume 13, Issue 2, Pages 181–223

Authors

Real name:
Steven Ongena